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Visa’s (V) Management Presents at Deutsche Bank Technology Conference (Transcript)

Visa Inc. (NYSE:V)

Deutsche Bank Technology Conference Call

September 13, 2017 2:40 PM ET

Executives

Sam Shrauger – Senior Vice President of Digital Products

Analysts

Bryan Keane – Deutsche Bank Securities

Bryan Keane

Okay, let’s get started here. I’m Bryan Keane. I cover payments for Deutsche Bank, and we’re excited to have Sam Shrauger, who is SVP of Digital Products at Visa. So, Sam, thanks for being here.

Sam Shrauger

Oh, thanks for having me.

Bryan Keane

I think, we – one of the things that that people were struck by, to start kind of high-level was at the Analyst Day, you guys were talking about a 10x opportunity and given the size and the history of the company, I think, people were surprised they can hear that. So maybe you can help us and walk just kind of on a big picture thing that that 10x opportunity, where’s that coming from for Visa?

Sam Shrauger

Sure. Look, I mean, is it 10x or is it 8x, I don’t know. But if you look at sort of what’s going on in different categories, obviously, there’s a lot of developing market acceptance that we can continue to build. There are a whole bunch of new transaction categories that are coming out of woodwork in terms of new forms of digital transaction and new forms of acceptance.

So I think, you look at the mobile device and you look at all the IoT devices and you think about how those things will be connected and you probably transactional in a lot of cases. And I think, we just see a lot of growth in electronification generally, and that’s going to take a whole bunch of different forms depending on what geography you’re in. But I think this secular trend, I guess, of payment electronification is just going to continue.

Bryan Keane

Can you talk a little bit about some of the investments that Visa has been making in technology and kind of your view on the impact of how the evolving ecosystem of payments continues to change?

Sam Shrauger

Yes. Look, I think, the biggest thing going on obviously is just digitization generally. So, we’ve invested a lot in the Visa Token Service, which is essentially the foundation that we’re building all of our new digital forms of payment on. So whether it’s the Apple pays, the Samsung pays, the Android pays, the applications that issuers are building to allow their consumers to pay. All those things are built on a foundation of the Token Service, and that’s going to continue to be the case as we get into more and more connected devices.

So that’s a big one, for sure. And I think, the other place where we’re doing a – putting a lot of energy is in our fast payments, and what we would call it push payment solutions, but essentially the ability to push funds to a Visa card, whether it’s from another card or from some other stored value system. It’s a big area of focus not just in a sense that developing markets are using it, but it’s also a foundation for a lot of either person to person or person to small business or a small business to contractor kinds of payment. So we’re seeing a lot of energy in the market, I guess, around that as well.

Bryan Keane

Yes, I was going to ask a couple questions around Visa Direct. That was obviously highlighted at your Analyst Day, in MasterCard’s Analyst Day that big opportunity. Can you just talk a little bit about the technology? I mean, it sounded like Visa Direct has been around for a little while. But now how do you promote it and how do you get volumes to shift on the Visa Direct?

Sam Shrauger

Yes, so it has been around for about 10 years, actually maybe even more. But the reality is, I think, we’re just starting to see a lot of the technology that goes around that technology developing. Meaning that, we’re seeing people wanting to make payments from social networks, or seeing people who want to push funds from their Uber proceeds to their debit card, so they can buy gas and continue driving.

We see a lot of – the gig economy is driving a lot of this kind of stuff. And so, I think, in a lot of ways, we do the promotion, but it’s really others who are utilizing the service and exposing it to the consumer. You think about things like Square Cash, Facebook payments. Those things are all fundamentally sitting on Visa Direct or riding those rails. But it’s not a consumer-facing product per say that we promote.

Bryan Keane

I think on the Analyst Day you guys highlighted that you’re hoping to increase the real-time accepted points payments by 700 million cards over the next 12 to 18 months. What’s the – is that difficult thing to do, or is that just turning on a switch? And then how do you – when do we start to see that incremental volume right away?

Sam Shrauger

Well, I think, look, there’s work to be done for sure to develop the markets and get markets enabled for these types of payments to to occur. At the same time, I think, there’s a lot of interest in the market that’s driving the demand for that to actually happen. So the hard work of getting issuers enabled to be able to post funds in real-time acquires and transaction originators able to generate those types of transactions.

But again, I think, there’s a lot of demand in various geographies, whether it’s developed markets or developing markets for this type of transaction. And so, it’s certainly an achievable goal, but it takes hard work.

Bryan Keane

Master Card acquired recently VocaLink as a way to get into the faster ACH or real-time payments. Visa is arguing that Visa Direct can do the same thing. Can you just compare and contrast Visa Direct, how it compares to VocaLink? And why necessarily that that strategy is not necessary for Visa to implement what they want to do here on real-time payments?

Sam Shrauger

If you think about it right now, so a real-time or Fast ACH trial is allowing one DDA to push ones to another. And quite honestly, with the exception of the fact that the number that you’re sending funds to is a Visa card number as opposed to routing an account number functionally they’re identical. And so the ability for us to enable fast payment use cases without needing to have yet another network to do it, that’s why Visa Direct was built in the first place.

So, I just think, if you look at the use cases, if you look at the needs that the market is trying to solve for with Fast ACH, they’re all achievable with Visa Direct.

Just to finish up on real-time payments, you’ll hear more and more about the Fed trying to get in real-time payments in all different countries, even outside the U.S. The common question I always get is, does this pose any kind of threat to the traditional networks in what they are doing?

Sam Shrauger

Look, ACH payments have been out there for ages. And in some cases, in many markets, actually, the settlement times are not necessarily real-time, but close. And again, we’ve managed to compete very effectively in those markets without the need for having a real-time ACH capability, and in markets where that – there are already fast payments or fast ACH payments.

So, look, I mean, how is it all going to play out and by what geography? I don’t know. But at the same time, I feel like, we’re very well-positioned relative to any of the fast ACH options. Just given the fact that again, that’s what the network does already and we’ve, I think, demonstrated that we can solve that problem pretty effectively.

Bryan Keane

And there’s got to be a lot of challenges to leverage that new payment network into the retail C2B type payments?

Sam Shrauger

Well, for sure. And I think, look, again, what we’ve done over 60 years is build acceptance, build consumer adoption, build the usage. And this is all just a different form of that same issue. But there’s so much opportunity out there to do that and do it in different ways that we feel really good about it, because now you’ve got every mobile device on the plan it could become an acceptance location. And again, building the devices are going to be connected to the route and many of them will be transactional. We just – that’s a great growth opportunity from our standpoint.

Bryan Keane

Can you just give us an update on VDEP and tokenization in general? Where has that been and is that been up to plan of kind of how you expected the roll out?

Sam Shrauger

Yes, I think, there’s anything we’ve rolled out the Token Service more quickly than we had originally planned. We’re in 27 markets now live with issuers. We’ve enabled 50-plus, and obviously, there’s work to do to get issuers integrated to the service, but it is available. So I think, we’re pleased with the pace of that. We always want to go faster. So, but I think in terms of what our plans were and the progress against those, we’ve done very, very well and continue to be, it’s a big priority.

Like I said, as far as all of our growth in digital, it’s going to be predicated on that foundation, because that is the mechanism by which we secure any of these digital transactions whether they’re QR codes, or whether they’re tap-to-pay or whatever the next thing maybe Bluetooth Low Energy who knows. But the global expansion of that and getting that foundation in place has to be the priority. And I think, we’ve done a good job of developing that.

Bryan Keane

Is moving Cards-on-File another big opportunity to move that over to tokenization as well?

Sam Shrauger

Yes, if you think about, the goals of tokenization were really two things. One was to devalue the information that’s stored in every repository and database around the world by merchants. And also to give – to create more flexibility in the types of payments that can be done, like I said, with a lot of these – well, all of these digital payments we wouldn’t do, but for tokenization.

Cards-on-File is obviously a huge part of that, because there are hundreds of millions of cards stored on file around the world. And not only can we devalue the data that comes along, that’s stored with the merchant and reduce the risk of compromise, but those transactions also have a lot of benefits on the merchant side in the sense that your card number may change if you lost it or it was reissued for some reason, but the token that you stored on file with the merchant won’t.

And so you’re not left in the situation of having to run around and update every card that you ever stored everywhere on the web, because the card number again may change in the background, but the token will not. And as a result of that, the merchants see higher authorization rates and there’s just a lot of benefits to that to go above and beyond just removing some sort of data from databases around the world.

Bryan Keane

Just thinking about mobile payments and adoption of mobile payments, can you just talk a little bit about where we are in adopting on mobile payments internationally in the U.S.?

Sam Shrauger

I think, obviously, the terminalization has been an issue in terms of – actually most of the terminals are actually NFC enabled and tap-to-pay enabled. They just may not have that functionality turned on. So, the equipment footprint is out there and then it’s just a matter of getting those devices activated.

So and that’s – I think, we all talk about that. It’s been an impediment on some level to mobile payment adoption. At the same time, I think, over time as we see consumers become more comfortable with devices and the questions about the security of those devices are answered that the propensity to use them is increasing.

In the rest of – well, in the rest of the world, but in the lot of other geographies, it’s going to take a very different form, that will take the form of scanning in QR to pay. In those – that’s a – while it’s a different use case, it’s essentially a different form of mobile payment.

So I think, we’ll see it develop in different ways around the world and in different markets, but certainly the mobile devices and going anywhere and the ability for that to become an accepted vehicle is enormous. And so I think, we’re going to see growth around the world, and that’s just a question of what form it takes.

Bryan Keane

At the Analyst Day, I think you guys were highlighting the usage of QR codes in India in particular for the demonetization there. Are you seeing growth in emerging markets for more QR code type things?

Sam Shrauger

Yes. The short answer is, yes. The – I think, the India demonetization was, I think, a forcing function for a lot of other government entities to look at how electronification could happen and would happen in their markets. And again, just given the cost of what terminalization given the fact that there isn’t necessarily a power outlet in a landline anywhere close to the merchants or consumers in a lot of these markets that QR will be a way that it is adopted, because it’s very cost effective. It’s very simple to use.

And again, it has all the characteristics of what we would consider a traditional card payment, pull payment as we would call it. And it has very little cost of entry in terms of getting access to the system as either a merchant or a consumer.

Bryan Keane

Wanted to see if I could get an update on Visa Checkout and where you guys stand on that since the last time we’ve talked about? It seems like adoption actually has done a little bit better on Visa Checkout?

Sam Shrauger

Yes. So we’re at – 24 million-plus consumers continue to focus on acceptance growth. We are doing, I would say, more international focus, obviously, with Europe. We’ve launched a product there, and we feel good about it. It’s, again, it’s effectively the act of building acceptance in consumer adoption again. But as far as how that’s going versus our plan, we feel good about it.

Bryan Keane

How does Visa Checkout differ from Master Pass and what they’re trying to do?

Sam Shrauger

Well, functionally, take a step all the way back. I think, the number one goal of any of these solutions is increasing the ease of use of cards in an online environment, and particularly, as the screen gets smaller on mobile. And we’ve spent all of our energy and time focusing on ensuring that that product is highly converting for the merchant as possible.

And just by way of example, roughly speaking, 65% of people who put something in a card will – and start to check out will actually finish if they’re on a full desktop computer. If they’re on a tablet, it’s more like 45% of people who finish their transactions. If it’s a mobile device, it’s often 20% or less. And we convert across devices at 80%-plus, and that’s actually consistent regardless of the screen size.

So, we feel good about that and that’s what we sell on and what we, I think, have been successful. How do we – how is it functionally different? There are nuances to how the products work that are slightly different. But I think, we have shown that the problem we set out to solve this one that we’ve actually solved effectively.

Bryan Keane

But Visa Checkout, if I understand, right, it doesn’t have a mobile wallet per se, right? It’s mostly just for e-commerce on the desktop?

Sam Shrauger

Yes. Well, we don’t have a mobile application for use in physical store. And Masterpass has varieties of that. But we we’ve done that for a reason, which is, first of all, the in-store purchased experiences has been solved in a way that the online and mobile commerce experiences haven’t. And so, it’s really our issuers who own those relationships with consumers and we want them consumers to pull out their issuer card in-store. There is not a problem there per se that that we feel that we need to solve.

Bryan Keane

I think last time we talked to the PayPal deal with Visa wasn’t announced yet. You obviously came from PayPal. So you in a former life. So, I guess, my first question is, since we’ve been on both sides of the table here, were you a little surprise that the two could come to an agreement, Visa and PayPal, and kind of work more together than compete?

Sam Shrauger

No, I wasn’t. And the reason is that, well, fundamentally, I think, I don’t want to speak for PayPal, but I think they’re evolving their strategy as they grow. And so we as digital comes upon us and honestly, there were a lot of good reasons for both PayPal and Visa to work together in ways that were good consumer experiences. And again, we’re helping to solve the fundamental issue of card usage online.

So, no, I mean, I really wasn’t in a lot of ways, it made sense, and may have – may not have been something that either company did 10 years ago or five years ago. But I think, given the way, we all see the world evolving that, I think, we can both look at it and say that there’s benefit there.

Bryan Keane

Does it minimize at all the Visa Checkout solution if you guys also partnering with PayPal?

Sam Shrauger

I think, it’s a matter of consumer choice. Consumers will gravitate toward whichever products, whatever products they find most useful, simple, et cetera. And so I don’t look at as competition per se. I think, we – again, we’re both solving the problem of simplifying card payments and that’s good for everyone.

And I think, PayPal has certainly shown that they can do that effectively. We’re working with them as partners and we’re also developing checkout. But I think, ultimately, it’s consumers who will make the choices about what they prefer, but not intended to be a competition per se.

Bryan Keane

How’s the partnership been, have you guys seen an increase in Visa volumes as a result of partnership?

Sam Shrauger

Well, I think, it’s being going well. In terms of the actual numbers, I would say, can’t get into those. But I think, given the fact that consumers have choice and free choice that that’s obviously helpful for the card networks. And the other things that we’re doing with PayPal are things that are accretive to both of us in terms of letting consumers use Visa Direct, for example, to exit funds from their PayPal account and get them posted to their debit card in real-time. And so, there are a lot of things break that way. I think, the systems that are mutually complementary and that’s been a good thing as well.

Bryan Keane

As PayPal moves to monetize Venmo, do you see that as a competing solution, or do you guys still can see that as a partnership?

Sam Shrauger

I’ve been asked that a lot. And honestly, I don’t personally think of it as competition. I mean, look, the Venmo system is used by a segment of the population in a demographic. And there’s utility to those consumers for allowing it to be used, because that threat to be used for a transaction is not a threat to the networks per se, I don’t think of it that way.

Bryan Keane

Just beyond the PayPal partnership, you guys have been, I think, more open to open APIs and to open up the network. Can you talk a little bit about the developer program that you guys have and what that’s creating? What’s the goal you’re trying to create?

Sam Shrauger

Sure. Well, I mean, if you look at the Visa system, it’s – it is a set of capabilities that can be used for everything from transaction processing and transaction initiation to risk management to reporting. And there’s a lot of value to opening that up, such that others can create utility around that. And so that’s been our philosophy with the developer platform.

We’re not the only ones who are going to create new and unique payment solutions. And in fact, a lot of the parties I was talking about earlier, whether it’s the Square Cashes or the Facebooks and others, they’re using those APIs to create utility for their users on their platforms and that’s great, because we’re a network.

We’re not going to be in the process or in the business of building every payment application that could be out there, or a payment-enabled application. But we can certainly provide the tools to those who want to do that and that’s really the foundation of what we are doing with the developer platform. It is intended to allow innovation to happen around the network, and I think doing it in some very interesting ways.

Bryan Keane

By the way, we can open it up for questions. If you have a question just raise your hand and we have a mike here. Sam, do you look at and study the opening up of the mark in Europe and PSD2, and what that might mean to the networks and to the marketplace?

Sam Shrauger

Well, yes. Look, PSD2s, there’s a lot of discussion of it these days. I think, everyone whether they’re in that market or already operating in that market or thinking about it is sort of sorting through the pieces. But again, I think, there’s an opportunity here for Visa to help our issuers create value for their customers in ways that, while others may have access to the account or account information to be able to initiate transactions against the account.

There’s a lot of the issuers can do to maintain the stickiness of their relationship with the consumer and ways that we can help them do that. I talked a minute ago about the ability for with Cards-on-File to not – do not have to be updated every time, there’s re-issuance. But there are also that tools we’re building around that that allow consumers to see every card that they have stored or every place that they have a token stored on file and be able to choose whether or not they want their token stay there or turn it on, turn it off, put limits around it.

And those are all things that are only going to be done through an issuer. And so, I think, there’s a lot that that we can do to help them be successful in that environment.

Bryan Keane

So when you net it out and we’ve written about this and try to study this as well. But do you guys see it more as a positive for incremental growth in revenue, or do you see it as potentially some cannibalization to loose some market share?

Sam Shrauger

I think that the opportunity is actually allowing issuers to create more value that may not be directly transactional. And that may take a different form of monetization for us. I’m not saying it will or won’t. But I do think that there are a lot of what we’re focused on to helping issuers compete in the PSD2 environment is to really give them ways to create value that spins beyond the transaction and does some of that flow to us or not. But I couldn’t say that right now, but I think we think there’s an opportunity there.

Bryan Keane

All these initiatives we’ve talked about, if it’s Visa Direct, real-time payments, tokenization, opening up the network. It all seems to push – trying to push more volumes for Visa to switch more transactions, PSD2, it creates that opportunity as well. Is the goal, I mean, how can Visa promote and push more transactions for it, it can switch themselves versus competing versus some of these domestic schemes across the globe?

Sam Shrauger

Yes. Well, that takes a variety of forms. Obviously, we want to grow our processing business around the world, where we can or make sense in the market. How do we do it? Well, we promote processing and the value of the network to the clients in those markets. And again, you look at things like tokenization, you look at things like being able to support Card-on-File transactions, or new transaction types like fast payments. Those are all ways that we compete to win local processing.

In addition to that, there are obviously partnerships and/or work that we can do with things like the developer platform that pull through demand, I guess, for the Visa network. And so it’s a multifaceted problem and it’s different by market. But there’s definitely an opportunity there for us that we see is being material. And again, I think, some of these accretive things that we’re building around just transactions switching per se are the things that will create that demand.

Bryan Keane

We can’t have a technology discussion without bringing up the blockchain. And I’d be curious to know, how fast is it developing over the last year or so? And what are some of the used cases that Visa sees for potential for – with the blockchain?

Sam Shrauger

Yes. it’s interesting. I mean, I think that I always had to differentiate between Bitcoin and the blockchain, I’ll focus on the latter, not the former, not a lot to say on that. But I think the technology of distributed ledgering has a lot of application. And I think there are – we’ve certainly done some demonstrations of things like originating a lease for an automobile from the automobile and having that posted to the public ledger. So that, you can be underwritten for insurance.

Is that the use case? No, these are all things we’re trying. But I think, what we’re piloting and testing really just developing around the blockchain. But there is value to the distributed ledgering approach. I think one of the reasons that we’ve spent time on energy on it was – so that we could learn more about where we thought that value was most implacable for us.

Is it going to be the foundation of transaction processing for us? Probably not. I mean, it’s just from a scalability standpoint, there are a lot of limitations there. But again, we were testing and learning, which is why do partner with companies or investing companies in that space.

Bryan Keane

So we talked a lot – about a lot of different initiatives and things. I guess, I’d be curious on which one of these things areas do you focus the most attention on in your day-to-day job?

Sam Shrauger

Yes, that’s a good question. The Token Service global roll out is definitely a big priority for us and for me personally. Again, that’s just a matter of continuing to execute, I think, on a playbook that we’ve gotten nailed down pretty well. But there are a lot more countries we need to be live. And so that’s a big one. Visa Direct is obviously another big one. There’s just so much to do there. There’s so much opportunity there. And there is the work that we need to do to lay the foundation to let that opportunity flourish.

And again, this takes different forms depending on which market we’re talking about. But I think that’s an essential network capability the – just like the transaction processing that we do via card and pull payments as we will call them as opposed to push payments. We have to do that same market development.

So that’s a big area of focus as well. And then, we have a lot of evolution that we are doing in our risk modeling and our authentication capabilities. And just a lot of accretion that we can do in above and beyond tokenization to securing an authentication, securing and authenticating transactions. And so that’s another big priority just because the world’s changing fast, and there’s a lot that we can do as a company to help our issuers. And the payment system in general continue to keep up with the demands on security.

And then the last piece is probably work that we’re doing in Europe. I mean, we obviously have a network migration going on there. And there’s – we have a good plan for it and good playbook for it, but it takes time and energy. And so that would be, I think, the other big area.

Bryan Keane

Just to follow-up on that last one, is it difficult to coordinate and get on the same page with Visa Europe and get on one platform? And how has that process gone so far?

Sam Shrauger

We have a good idea of how that network migration is going to take place. We have a good idea. We have a good plan and a lot of good engineers and others that are executing against it. I think, there’s an opportunity there for us to bring some new services into that market as we get the networks integrated. But the migration itself, we’ve done things like this before, and it’s again not to trivialize it or say it isn’t complex. But from an execution standpoint, I think, we’ve got the right people and the right plan.

Bryan Keane

Okay. With that, Sam, we’ll keep it there. Thanks so much for being here.

Sam Shrauger

Thank you.

Question-and-Answer Session

Q –

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