Earnings Call Transcript - V Q1 2022

Operator, Moderator

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

Jennifer Como, Investor Relations

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

Al Kelly, CEO

Jennifer, thank you, and good afternoon to everybody, and thanks for joining us. Amidst much uncertainty this quarter resulting from the ongoing COVID pandemic, Visa's financial performance was very strong. Our net revenues grew 24% year-over-year. Non-GAAP EPS was $1.81, up 27%. Our financial performance was driven by record volumes, transactions, and credentials. In Q1, we crossed the $60 billion payment transaction mark for the first time in history, up 26% from two years ago. Visa cards were used 28 million times per hour in the last quarter. We also increased our card credentials to over $3.8 billion, up 10% in one year. I'm going to leave the rest of the details to Vasant as I want to focus on the future. As we look ahead, we expect accelerated revenue growth versus pre-COVID over the coming years, driven by our three strategic levers of consumer payments, new flows, and value-added services. Many current trends in payments, including account-to-account, real-time payments, Buy Now, Pay Later, crypto, and wallets are enabling new ways to pay. These represent opportunities for Visa, where we are extraordinarily well positioned to utilize our unique strength and global network to help them grow and scale. Let me start by talking about consumer payments. The opportunity to displace cash and check is enormous. At our last Investor Day, we said it was $18 trillion. In Q1, we saw our debit cash volumes at Visa grow 6%, while debit payment volumes grew 19%. While cash displacement is certainly a reality, global personal consumption expenditure of cash and check grew at a compound annual growth rate of 2% over the 10 years ending in 2019. When we look at the opportunity ahead, if you assume global cash grows at 1% annually, industry-wide digital penetration of personal consumption expenditure will reach 90% for several decades. For example, in Latin America, until a few quarters ago, there was more cash volume than payments volume on Visa credentials. In fact, in the past year, there has been a nearly 6.5-point shift, and payments volume is now 55% of the total volume, even with cash in Latin America growing 10% this past quarter. We have expanded acceptance locations in Latin America by almost 30% in the past year to 18.5 million locations, and we've grown credentials over 20%. This quarter, we signed an eight-year agreement with Santander Chile, one of the largest issuers in the country. In Brazil, we recently signed a deal with Banco XP, one of the country's largest digital banks with over 3 million customers. Brazil remains a growth market with payments volume growth up more than 1.5 times historic levels in recent quarters. The key to digitizing cash is that the on-ramps to our network have never been easier to access. Wallet providers have been rapidly issuing Visa credentials as they see value in an open-loop ecosystem. Naranja X is a rapidly growing Argentinian wallet using Visa cards with 2 million credentials issued between prepaid and debit over the last two years. This quarter, we renewed our partnership with PayPay Bank, which enables accounts to PayPay wallet users. PayPay is one of the fastest-growing digital wallets in Japan with 42 million users, and the bank already has 4 million Visa debit users. We recently extended our partnership with Safaricom, the operator of M-PESA, to cover African markets outside of Kenya, where M-PESA has 50 million customers. We're also providing on-ramps for crypto players creating connectivity with fiat economies. There are over 65 crypto platforms and exchanges that have partnered to issue Visa credentials. This quarter, Visa credentials in crypto wallets had more than $2.5 billion in payments volume, which is already 70% of the payments volume for all of fiscal 2021. In addition to embedding credentials in crypto platforms, we continue to innovate around our settlement and crypto API capabilities, which have been key differentiators for us for fintechs and financial institutions looking to extend crypto capabilities to their customers. We will continue to lean into the crypto space. Our strategy is to be a key partner to provide the connectivity, scale, consumer value propositions, reliability, and security that are needed for crypto offerings to grow. Earlier this month, we previewed CBDC payment APIs currently in development, which would enable central banks to connect their Ethereum-based CBDCs with Visa rails through a wallet with digital issuance capabilities, enabling consumers to spend with CBDCs at any Visa merchant. We partnered with Consensus to develop this concept, which was selected as one of the winning entries out of 300 ideas from 50 countries at the Global CBDC Challenge as part of the Singapore FinTech Festival, judged by representatives from the IMF, the World Bank, the Bank of International Settlements, and the central banks of Brazil, India, Kenya, and Indonesia. In the face-to-face world, tap to pay continues to accelerate growth. Let me highlight progress in a few larger markets. In Brazil, the tap to pay penetration has increased from 5% to 24% in the past year. In India, where we have increased merchant locations 30% since fiscal year 2019 to 6 million at the end of fiscal year '21, the tap to pay penetration has nearly doubled to 16% in the same period. All of these efforts have helped fuel our 40% plus year-over-year growth rate in payments volume in India this past quarter. In the United States, we're nearing 20% tap to pay penetration, with key metro cities showing even stronger growth: L.A., Seattle, Detroit, Orange County, Miami, and Salt Lake City have all surpassed 25%. San Francisco, San Jose and Oakland are up over 30%, and New York has reached 45%. E-commerce is also key to digitizing payments, and e-commerce merchants are certainly growing as our relationships with them. We successfully closed a U.S. co-brand deal with Shopify, a key e-commerce platform with millions of global merchants and entrepreneurs. The Shopify Balance Card will allow Shopify's U.S. merchants to access funds from sales by the next business day and receive cash back on everyday business expenses like shipping and marketing. Buy Now Pay Later, our BNPL, continues to grow; and we're seeing more and more BNPL fintechs issuing Visa credentials. Visa is enabling their shift to open loop so that their value proposition to consumers can scale through Visa's broad acceptance. Last quarter, I mentioned Corner, and this quarter, I'm pleased to announce that Affirm has chosen Visa as their network partner for the Affirm debit card, as well as renewing the virtual card business. We look forward to supporting Affirm's continued growth through Visa's wide acceptance and reach. BNPL fintech consumers also continue to use their cards to pay off their installments, with active cards growing 50% in the same period. For traditional issuers, we have a network installment solution called Visa Installments, which enables our financial institution clients to seamlessly offer BNPL capabilities through an existing credit credential on any Visa transaction. In Canada, one of the countries where we are launching the capability, we now have commitments from issuers and acquirers representing the majority of payments volume. Credentials on our network of networks through BNPL, crypto, other fintechs, and our traditional issuers bring compelling value propositions like identity protection, fraud prevention, dispute resolution, security, loyalty, and more to consumers. This tremendous value motivates consumers to use their Visa credential online or in face-to-face purchases versus cash, account-to-account real-time payments, or even blockchains. To summarize, the opportunity in consumer payments is huge and has an incredible long-term runway; the on-ramps to our network of networks have never been easier. We provide a compelling consumer value proposition, and the advances in new ways to pay are beneficial for Visa and these payment providers. Visa is enabling utility and scale for BNPL, crypto, wallets, and all other nuanced entrants. Now let me move to progress with use cases and new flows, representing a $185 trillion opportunity, ten times that of consumer payments. We are seeing a large appetite from our partners and experiencing significant growth. A key driver is Visa Direct, which targets a $65 trillion opportunity across peer-to-peer, small business, business-to-consumer, and government-to-consumer. These are all use cases that Visa didn't traditionally serve just five years ago. By aggressively pursuing these flows with our more compelling solutions, Visa is seemingly displacing alternatives that rely on fragmented and outdated technology, not the other way around. Visa transaction growth was 35% this quarter. In the U.S., domestic peer-to-peer is currently our largest use case and also our lowest yielding one. As we scale and grow other geographies and use cases, especially those that are cross-border, we expect the revenue yield to increase. Regardless of the yield, Visa Direct is accretive given it mostly leverages our existing platforms and capabilities. Usage is growing with banks signing on for global remittances using cards or accounts, among them Qatar Islamic Bank, one of the largest banks in Qatar, and CIBC and Simply Financial in Canada. Visa Direct is also enabling fintech Chime and neobank Barra in the U.S. for account-to-account money movement. Usage has also expanded across several other use cases this quarter, such as payouts to DoorDashers in Canada. We also recently signed an agreement with Toast to leverage Visa Direct on several fronts. First, near-instant cash flow access to daily sales and loan disbursements for their 48,000-plus restaurant customers; and second, for fast tip payoffs and earned wage access for their restaurant client employees. Visa Direct is a compelling capability because we offer incredible reach to more than 5 billion cards and accounts, global scale, a leading technology stack, world-class security, and 24/7/365 reliability. All of this is easy to access through hundreds of partners across our global network of networks, reaching bank accounts through a combination of card, ACH, and RTP systems in more than 175 countries. In the B2B new flows opportunity, we expect future growth to have several vectors. Let me just highlight a couple. First, B2B card issuance in both physical and virtual cards, where we have a leading share. This quarter in India, after partnering with leading B2B neobank Open for several years, we signed a deal for credit and debit issuance as well as the implementation of Visa Direct. In the virtual card space, we're expanding into new verticals. One recent example is healthcare. This quarter, we signed an agreement with NoMe Health, a healthcare provider that serves 30,000 people per day across 10 U.S. states for its claims payment solution. A second vector of B2B growth is large-ticket account-based cross-border payments through Visa B2B Connect, which links our global payments infrastructure with best-in-class capabilities to address the primary pain points of existing solutions. In Latin America, Visa B2B Connect is available in nearly 30 countries, and we've enrolled partners in more than one-third of those countries already. One partner is Banco, a leading bank in Mexico; since enabling the solution in March of 2021, this bank has grown Visa B2B Connect volumes in double digits every quarter and has processed thousands of transactions with hundreds of millions of payment volume. We also recently added Sberbank, the largest bank in Russia and Eastern and Central Europe, which will be live and processing transactions later this year. So, to summarize new flows, the opportunity is ten times that of consumer payments. Our capabilities and value proposition are strong versus the competition, and we expect revenue yield to continue to improve as we scale and grow Visa Direct, especially in cross-border use cases. Now let's move to value-added services. In Q1, revenue grew over 20%, and we expect strong growth to continue. One example is with Visa Consulting and Analytics. In addition to our crypto offerings that I mentioned earlier, we recently launched a specialized global crypto advisory practice to help financial institutions eager to offer customers a crypto solution, retailers who are looking to delve into NFTs, or central banks exploring digital currencies. Another example is authentication. In Europe, we have tripled the use of Visa's new authentication technology, EMV 3DS, since the start of 2021; this coincided with a reduction in card-present fraud by 28% and positively impacted the transaction authorization rates. We are launching new capabilities to prepare for the future. Visa Acceptance Cloud enables clients to move embedded payment processing software from individual devices to the cloud, eliminating the need for expensive terminals and the costs and time to certify the processing software. In addition, clients can access value-added services from fraud management to BNPL. We also recently closed our acquisition of Currency Cloud. We believe the combination of Currency Cloud's APIs on the front end, which provide real-time foreign exchange capabilities and our settlement capabilities across our network of networks, will enable a very compelling value proposition. Together, we can enable new use cases and payment flows, particularly as we expand the cross-border use cases we provide our clients, including B2B Connect and Visa Direct. We can extend our FX platform for easier connectivity for fintechs and non-financial institution partners, offering real-time FX rates and improving transparency for our partner customers. So to summarize value-added services, we will continue to bring Visa innovation to the payments ecosystem. We are diversifying our revenue mix, and this will help us retain and win business and grow revenue well into the future. In conclusion, as I think about Visa's future, I'm extremely optimistic and energized. While much has been written about new payment types being potentially disruptive to Visa, we see far more opportunity than disruption. Our global infrastructure is providing connectivity through our network of networks to power more traditional payment types and newer ways to pay and move money. Our interconnectivity, security, reliability, consumer and fraud protections, risk management, and other value-added services offer a superior experience. We expect to attract more and more transactions, which will continue to fuel our growth at an accelerated rate. With that, let me turn it over to Vasant.

Vasant Prabhu, CFO

Thank you, Al. Good afternoon, everyone. Our fiscal 2022 is off to an excellent start with net revenues up 24% and GAAP EPS up 29%. Non-GAAP EPS adjusted for items, including investment gains and the litigation accrual, was up 27%. In constant dollars, net revenue growth was approximately 1 point higher at 25% and non-GAAP EPS approximately 1.5 points higher at over 28%. A few key highlights: we had a very sharp recovery in cross-border travel in October and November as much of the globe, excluding China, moved to reopen borders or announced timetables to open borders and lifted restrictions such as quarantines. As a result, card-present and card-not-present travel, which exited September at an index of 61 to 2019 rose steeply to hit an index of 72 for the first quarter. Border reopening came sooner than we had anticipated, and as we've seen throughout 2021, consumers are very quick to actually engage. As Omicron hit, some borders shut, and some restrictions were reinstated. However, as we speak, more are being reopened and restrictions are being lifted. We expect the travel recovery to resume as we head into February. Payments volumes remained robust through the quarter globally, with the index for 2019 stepping up relative to the prior quarter by 2 points in the U.S. and 6 points internationally. The credit recovery continued, and debit growth remained strong and stable. U.S. holiday retail spending was specifically strong, more than 40% over 2019. E-commerce continued to gain share, with retail spending up 5 points since 2019. The impact of Omicron on domestic volume has been modest. As the Omicron wave affects globally, we expect the impact to ease as it has in markets such as South Africa and the UK, which were among the first to be helped. Revenue growth was very strong across our three growth engines. Consumer payments and new flows' net revenues grew in the mid-20% range, and value-added services revenues grew over 20%. We significantly stepped up the pace of our stock buybacks during the quarter. We acquired 19.4 million shares for $4.1 billion at an average price of $210, and our Board authorized a new $12 billion stock buyback program in December. Also, in late December, we closed the Currency Cloud transaction. Now on to the details: in constant dollars, global payments volume was up 20% year-over-year and 26% versus 2019, each accelerating 3 to 5 points versus the last quarter, led by continued strength in debit as well as improving credit spending. Excluding China, total payments volume growth was 22% or 31% higher than 2019, which was a 4 to 5-point acceleration from the fourth quarter. U.S. payments volume grew 22%, up 32% over 2019, both higher than Q4. Credit grew 27% and improved 6 points to 23% above 2019, helped by affluent consumer and small business spending. Debit grew 18% year-over-year and remained very strong at 43% above 2019, similar to the last quarter. As you can see, debit spend has remained resilient even as credit recovered. U.S. card-present spend grew 25% and was 17% above 2019, improving 2 points at its highest level yet in the pandemic, driven by fuel, retail, and entertainment spending. Card-not-present volume, excluding travel, grew 16% and above 2019, similar to the last quarter. E-commerce growth remains robust, even as card-present spend continues to recover. U.S. retail spending during the holiday season grew double digits and more than 40% of our 2019 levels, both of which are very strong by historical standards. The share of holiday card-present retail spending improved a few points from last year, but was still 5 points lower than 2019 as the shift towards e-commerce over the past decade continues. Retail shopping is happening earlier in the holiday season than it used to, which is a trend that started last year. As a result, relative to 2019, November volumes were stronger than December. U.S. holiday spending trends are fairly consistent with other major markets around the world. International constant dollar payments volume, excluding China, grew 22% and was 29% above 2019, improving 7 points from the fourth quarter. A few regional highlights: Latin America was up 44% year-over-year and 66% above 2019, accelerating 8 points from the fourth quarter with robust performance across the region, fueled by cash digitization and client wins. Our CEMEA region remained strong, up 31% and 58% from 2019 levels, accelerating 10 points from the fourth quarter, also fueled by cash digitization and client wins. Europe was up 17% and 23% from 2019, improving 3 points from the last quarter due to strong performance across Continental Europe. Asia Pacific, excluding China, remains our weakest region, up 16% both year-over-year and versus 2019, but the recovery is finally underway with an 11-point improvement from Q4, mostly due to relaxed restrictions. The largest improvements were in Australia, India, Southeast Asia, and Japan. Global processed transactions were up 21% year-over-year and 26% over 2019, 2 points better than the fourth quarter, accelerating less than overall volume growth due to higher ticket sizes. Constant dollar cross-border volume, excluding transactions within Europe, was up 51% year-over-year and was 1% above 2019 volumes, a 15-point improvement from the fourth quarter. Cross-border card-not-present volume growth, excluding travel, continued to strengthen, up 26% year-over-year and 50% above 2019, 7 points higher than the fourth quarter as consumer engagement continues to grow. Cross-border travel-related spending, excluding intra-Europe, grew 102% year-over-year and was 72% of 2019 levels, improving an extraordinary 14 points from the fourth quarter to the first quarter. The recovery in the first two months of the quarter versus 2019 was very fast and broad-based, with outbound travel from each of our regions improving more than 10 points relative to 2019 from September to November. Inbound travel to the U.S., Canada, EMEA, and Europe all improved about 20 points during that time, while Latin America and Asia each improved at least 5 points. This recovery was driven by a combination of border openings, the relaxing of restrictions, and pent-up demand. Countries such as the U.S., Singapore, Thailand, Australia, and Chile, Argentina, and many more reduced friction for inbound travelers. The U.S. to Europe corridor remained open. This deep travel recovery started to lose momentum in the last week of December as Omicron spread around the globe. We expect this to be short-lived. Moving now to a quick review of first-quarter financial results. Service revenues grew 19%, slightly better than the 18% nominal growth in Q4 payments volume, helped by increased utilization of card benefits and small pricing modifications. Data processing revenues grew 19%, slightly below the 21% processed transaction growth, mostly due to exchange rate changes. International transaction revenues were up 50%, consistent with nominal cross-border volume excluding intra-Europe. Other revenues grew 17%, led by consulting, data and marketing services, as well as travel-related benefits. Revenue growth was robust across our three growth engines. Consumer payments grew in the mid-20s, led by improving cross-border volumes and continued strong domestic volumes and transactions. New flows also grew in the mid-20s, driven by Visa Direct and the carded B2B recovery. Visa Direct transactions grew 35%. We're lapping very strong quarters from last year, which is moderating U.S. growth rates. Meanwhile, the international business is ramping fast, as is growth from use cases such as cross-border remittances, earned wage access, and marketplace payouts. Commercial or B2B volumes grew 28% year-over-year and up 26% over 2019, a 5-point improvement from the prior quarter, mostly in credit. The growth is helped by share gains and a portfolio of diverse spend categories that is not overly dependent on travel and entertainment. Value-added services revenue grew over 20%, led by risk and identity services, as well as consulting and data services. Growth was driven by new client adoption, increased usage among existing clients, and international expansion. Client incentives were 25.1% of gross revenues, about 1 point below our expectations. This was a result of a significantly better revenue mix due to the faster-than-expected recovery of our cross-border business. As our revenue mix continues to normalize with the cross-border recovery, it will help this ratio. GAAP operating expenses grew 24%, inclusive of a $145 million litigation provision associated with the U.S. interchange multidistrict litigation case. Non-GAAP operating expenses grew 16%, in line with our expectations. We recorded gains from our equity investments of $231 million. Excluding investment gains, non-GAAP nonoperating expense was $110 million. Our non-GAAP tax rate of 19.3% was in line with expectations. Our first-quarter tax rate is typically a little lower than the full-year rate. GAAP EPS was $1.83. Non-GAAP EPS was $1.81, up 27% over last year. Including our quarterly dividend of $0.375 per share and our stock buyback, we returned $4.9 billion of capital to shareholders in the quarter. A few comments on our trends through the first three weeks of January: on a year-over-year basis, U.S. payments volume was up 13%, with debit up 4% and credit up 25%. As you assess these numbers, it is important to remember that there was a government stimulus disbursement, which caused the surge in debit spending in early January 2021. January spend growth versus 2019 was up 40%, with debit up a robust 52% and credit up 29%. These trends are relatively consistent with performance in our major markets around the world. Processed transactions grew 17% year-over-year, up 37% versus 2019, lagging volume growth due to larger ticket sizes. Cross-border volume, excluding transactions within Europe on a constant dollar basis, grew 44% year-over-year and was 4% above 2019. Card-not-present non-travel growth remained strong at 67% above 2019, up 17 points from the first quarter. The cross-border travel recovery has stalled since late December due to Omicron, indexing at 72 to 2019, in line with the first quarter. Border reopening, and we expect the recovery to resume in February. Total cross-border volume was 14% above 2019. Moving now to our outlook for the second quarter. Domestic volume growth has stayed robust and stable for the past three quarters. While Omicron has had some recent impact, it has been modest and will ease as the wave crests. This is also the case with e-commerce growth, both domestic and cross-border. We are assuming that these trends continue. The swing factor is cross-border travel. As discussed, the cross-border travel recovery was very rapid in October and November as the U.S. border reopened and many countries eased restrictions or announced plans to do so. With Omicron surging, some restrictions were put back in place and some reopening plans were put on hold. However, restrictions are being eased, and borders are reopening. We're assuming the cross-border travel recovery resumes in February. As such, we expect net revenues to grow at the high end of the high teens in the second quarter, including over 1 point of exchange rate drag. Incentives should grow at a similar rate as the first quarter, which, as a percent of gross revenues, will likely be in the 25.5% to 26.5% range based on volumes, renewal activity, and cross-border performance. We expect organic non-GAAP operating expenses growth at the high end of mid-teens, with some additional investment spend. The inclusion of Currencycloud will add another 1.5 points to non-GAAP operating expense growth. Tax rate is expected to come in at the high end of the 19% to 19.5% range. We can also update some of the planning assumptions for the full year we had shared with you in October. Domestic payments volumes and cross-border e-commerce volume, as well as the associated transactions, are largely in line with expectations. At the end of December, we were running significantly ahead on cross-border travel indexed to 2019 relative to our assumptions in the fall. As such, we are now assuming that the cross-border travel index for 2019, excluding intra-Europe, will end the fiscal year 10 points ahead of our prior assumptions, reaching 90%. Inclusive of intra-Europe travel, this would be back at 2019 levels. With these updated assumptions, net revenue for the full year would grow at the high end of high teens, including 1 point of exchange rate drag. Obviously, revenue growth would be higher if the cross-border recovery is more robust in the second half and more akin to what we saw in October and November. With revenue mix improving from higher cross-border volumes, incentives as a percent of gross revenues would range between 25.5% to 26.5% for the year. We expect organic non-GAAP operating expenses growth at the high end of mid-teens. The inclusion of Currencycloud will add another point to non-GAAP operating expense growth. On a GAAP and non-GAAP basis, the impact of Currencycloud is not material for the year. As a reminder, in our non-GAAP numbers, we make adjustments to exclude amortization of intangibles and nonrecurring acquisition-related costs. In summary, FY '22 is off to an excellent start. We expect our growth this year will be well above the pre-COVID rate as cross-border recovers. This will likely continue into fiscal year '23. Beyond that, we are confident the business can sustain a revenue growth rate above pre-COVID levels for three reasons: first, an acceleration away from cash and check for merchant payments both domestic and cross-border as digitization becomes pervasive across consumers and businesses globally; second, acceleration of cash, check, and wire transfer displacement as our new flows initiatives penetrate a broad range of new use cases with very large total addressable markets; third, sustainable high-teens growth across our value-added services, both from existing services and new offerings. As new flows and value-added services become a larger part of our revenue mix, growing faster than consumer payments, the sustainable growth rate will continue to rise. We are, and will continue to invest in the capabilities required to capture the extraordinary growth opportunity ahead of us. With that, I'll turn this back to Mike.

Mike Milotich, Investor Relations

Thank you, Vasant. We're now ready to take questions.

Operator, Moderator

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

Darrin Peler, Analyst

Nice job. Al, can you start off by revisiting what you see as the key sustainable factors that have probably accelerated somewhat as the pandemic progressed? Whether that's services or it's just volume having shifted over faster? And then I guess on that note, as we get cross-border improving, you should get a pretty big pass-through to the bottom line. I'm just curious about your thought process around the potential for reinvestment versus rewarding shareholders?

Al Kelly, CEO

Well, Darrin, I think, first in the near term, I think the upside is going to come from continued recovery of travel and the affluent customer getting back into the mix of spending at the levels they were pre-pandemic. In terms of sustained longer-term opportunities, I think they come from a number of places. First, e-commerce adoption is going to be very sticky, and millions of people around the world went to e-commerce for the first time during the pandemic. Continued cash displacement is without question going to continue as there are simply more ways to pay, which will drive volume. Geographic expansion for us is another area where we're going to see sustained growth over time. I also think continuing to penetrate new flows and the opportunities we have with Visa Direct, B2B Connect, and other areas within B2B, plus our ability as we capture more transactions to sell our value-added services will provide terrific growth for us going forward. In terms of your second question, I'll let Vasant weigh in as well. Look, Vasant talked about our updated planning assumption on cross-border where we think we're going to be about 10 points better than our original planning assumption, and certainly, that is going to be helpful for us. As we look ahead, we're going to continue to be very balanced in our thinking. We're conscious of making sure that our level of investment is at the appropriate levels against the right initiatives to manage the business and fund growth initiatives into the future, while also being careful about our expenses as we go forward.

Vasant Prabhu, CFO

Yes. I mean, going back to your question about shareholders and returning cash to shareholders, we did step up our dividend. It's $1.50 per quarter now; we did that last quarter. And then, as you saw, we accelerated our stock buybacks. Our stock buyback is programmatic, but when we see opportunities, we step it up. Our first priority is investing in our core business; there's plenty of opportunity here for growth. The second would be acquisitions that enhance our capabilities like Currencycloud and hopefully, we soon close on Tink. And of course, we've always been returning cash to shareholders, most of our free cash flow, in the form of dividends and buybacks.

Operator, Moderator

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

Rayna Kumar, Analyst

So as you both highlighted, your debit volume remains very strong. Can you discuss how much of that strength is coming from Visa Direct and how sustainable that growth is in '22, of course, excluding the second quarter comp issue with the government stimulus?

Al Kelly, CEO

Rayna, it's a couple of points, and it's been consistently that through the entire run of the pandemic.

Operator, Moderator

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

Harshita Rawat, Analyst

I want to ask about inflation. Vasant, can you remind us how does inflation impact you? You obviously get benefits in purchase volumes, but how does it impact ticket sizes and consumer behavior in your view? And can you also talk about the cost and personnel expense aspect of it?

Vasant Prabhu, CFO

Sure. In terms of inflation as it relates to our revenues, as you know, our service fees cross-border, etc., are denominated primarily in basis points on ticket size. So to the extent that there's inflation driving up ticket size, clearly, it's beneficial to us. When it comes to transactions processing, our fees are generally tied to the number of transactions. Right now, of course, the size of the basket has gone up, some of it due to inflation, others due to an increase caused by the pandemic and the loss of smaller transactions. Net-net, we are beneficiaries of inflation. In terms of wage inflation, it's reasonable at this point, and we will update you if it becomes more than we expected.

Al Kelly, CEO

No, I think it was a very complete answer. The only other factor you didn't mention relative to ticket sizes is that the affluent segment, which is the segment whose spending went down the most during the pandemic, comes back in and tends to have higher ticket sizes as well. So, there are a number of factors that drive ticket sizes.

Operator, Moderator

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

Sanjay Sakhrani, Analyst

So Al, you talked about the many reasons in your opening that you expect the growth to be a significant tailwind with many of the partners and products that you cited. It's interesting because many of the doubters sort of speak to that as the reasons to be concerned about the outlook. I'm just curious what you think they're missing. I just had a follow-up for Vasant. In terms of the updated cross-border guidance, does that assume that there's a gradual improvement after February or that people go back to traveling like you saw in November and December?

Al Kelly, CEO

Sanjay, I'd say a couple of things. One is that much of the innovation we have seen is coming in ways to pay. We're a network that is agnostic to the different ways people want to pay. Ultimately, the consumer will decide based on the value that they believe they are receiving, as well as the user experience. Open networks win over closed networks, and Visa is a truly open global network with incredible reach and scale.

Vasant Prabhu, CFO

Going back to your second question on cross-border, what has become evident from multiple data points over the last six to nine months is that when borders open, it's like a switch turning on; the reaction is virtually immediate. Our assumption is for steady improvement through the year, but we know it won't be steady. We expect that the cross-border travel recovery will resume in February.

Operator, Moderator

Our next question comes from Ken Suchoski from Autonomous Research. Your line is open.

Ken Suchoski, Analyst

I wanted to follow up on the cross-border business. I mean some really solid results there. And I'm just curious to get your thoughts. Can you talk about whether this business gets back to pre-COVID trend growth? Or do you expect the cross-border business to get back to pre-COVID trend levels? Meaning does cross-border revenue and volume eventually catch up to where it would have been had COVID not happened?

Vasant Prabhu, CFO

Well, I think the short answer is we fully expect to get back to pre-COVID trend levels. The e-commerce business cross-border is clearly one that we think can sustain above-trend growth rates relative to pre-COVID. We see no reason why, after the travel business returns to pre-COVID growth rates, it cannot maintain that trend. In fact, there is a possibility that the overall cross-border business could surpass pre-COVID growth rates after returning to the trend line.

Operator, Moderator

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

Lisa Ellis, Analyst

I had a couple of strategic questions related to the Visa Acceptance Cloud announcement. First, is it open to all types of card payments? Or is it Visa only? And then second, how are you monetizing this Acceptance Cloud? And then the last one is, how should we think about the interplay between the Visa Acceptance Cloud and your ecosystem of acquirers and payment facilitators given that many of them have their own solutions in the POS space? Are they embracing it, or is it potentially competitive with their solutions?

Al Kelly, CEO

Well, Lisa, first of all, it's early days with this. Our approach is to not charge for it because we think it's extremely valuable for the ecosystem to expand acceptance. My expectation is that once we can get the transaction on our network, we will have more opportunities to sell things like value-added services over time. Despite our network having 100 million merchant locations, there is still a long tail of merchants around the world that do not accept. It's important for us to bolster the acceptance footprint that we have around the world.

Operator, Moderator

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

Jason Kupferberg, Analyst

Just wanted to take your temperature a bit on the global regulatory landscape. Does it feel more or less risky than, say, where we were pre-pandemic? I mean just given the political climate in the U.S. There's still the merchant litigation in Brooklyn, the Fed proposing some changes to the Durbin Amendment. There were some recent reports out of the U.K. from the payment system regulator there. So just wanted to see how you're thinking about that overall or any areas of risk we should be potentially mindful of?

Al Kelly, CEO

Jason, for as long as I've been involved in payments, there's always been regulatory issues and discussions taking place around the world, so it's really part of being in the business. I do not think there has been any material change in the environment in the last quarter or in the last year. I think the pandemic has helped governments recognize the importance of digitization because it enabled people to order food and items delivered to their homes. I also think that during this time, we have assisted a number of governments with the issuance of stimulus money or in cases where they recognized first responders and healthcare workers. This allows us to engage thoughtfully and frequently with regulators across the globe.

Operator, Moderator

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

Tien-Tsin Huang, Analyst

Good to connect with you all. Just on the strong mid-20s revenue growth this quarter. I know it was nicely ahead of the high teens you talked about last quarter that you expected. Was it primarily cross-border that drove the upside, or were there any other callouts that you would point to because I know we've fielded a lot of cross-border questions? And then just quickly on rebates and incentives, I guess the outlook is 50 basis points better than prior guidance; is that also primarily the result of cross-border? Any other impacts from pricing, etc.?

Vasant Prabhu, CFO

Yes, you're right, Tien-Tsin. The cross-border outperformance in the first quarter was primarily cross-border, but value-added services also performed considerably better than we expected. There was outperformance on payments volumes too, but that doesn't show up in the quarter. However, there would have been higher service revenues had there been no lag. Regarding rebates and incentives, we've been saying for a while that those numbers were going up because of the mix change away from cross-border. The improvement was entirely driven by the mix improvement due to cross-border strength.

Al Kelly, CEO

The only thing I would add is that we also had a very strong holiday period. We've seen this phenomenon of the holiday season stretching, and it's no longer really Black Friday to Christmas Eve. It's truly beginning early in November, driven by the increase in e-commerce usage.

Operator, Moderator

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

David Togut, Analyst

Looking at the upgrade in your cross-border travel forecast for the rest of this year, does any of that include reopening of China? And if it doesn't, what impact would a China reopening have on the impact of cross-border travel payments, obviously, depending on timing?

Vasant Prabhu, CFO

Yes. We don't make specific assumptions on that. No one corridor accounts for a significant portion of our volume. We expect some opening in Asia. The big surprise in October before Omicron hit was that Asia opened up faster than we expected, with countries like Thailand and Singapore announcing phased opening plans. We are not counting on a big recovery of the Chinese business, but reopening in Asia will play a role in our recovery.

Operator, Moderator

Our final question comes from Dan Perlin from RBC Capital Markets. Your line is open.

Dan Perlin, Analyst

The question I have is, you outlined a ton of great opportunities for future growth. But in many instances, there are just so many, it's hard to pull these things together. So when you take a higher look at it and think about it from a secular growth versus cyclical mix of your revenues, where does it sit today versus maybe in the prior pandemic? And how should we be thinking about that mix shift to get you to an accelerated growth path?

Vasant Prabhu, CFO

Yes, I can start, and I'm sure Al will add. In the short run, the cyclical recovery is by far the biggest driver of growth. However, the underlying growth trends are stable and growing at an above-trend level. If you look at our payments volumes, credit is recovering, but debit remains resilient with a growth rate that is higher than it was pre-pandemic. We see the same for value-added services and new flows, while the biggest driver of growth right now is the recovery. The underlying secular growth trends are also above trend relative to pre-pandemic levels.

Al Kelly, CEO

Yes, I'd agree with all of that. And if we look at our growth by certain verticals, we see incredible growth in home improvement and food and drug categories, likely because of new shopping models allowing for online orders and delivery. A combination of these new ways of shopping and paying will drive growth moving forward.

Mike Milotich, Investor Relations

And with that, thank you all for joining us today. If you have additional questions, feel free to contact or email Jennifer or me. We're happy to help you, and have a great evening. Thanks so much.