Coronavirus adds another unknown to Visa's China plans

Like its rival Mastercard, payments volume is on the rise at Visa, but the coronavirus complicates the near-term economic outlook and makes China an even tougher market.

"It is too early to know," said Visa CEO Afred Kelly said during Visa's first quarter earnings call, similar to Mastercard CEO Ajay Banga's uncertain take on the virus earlier this week. "When we look at our numbers (in China), we some declines, but the Chinese New Year was a month earlier this year and spending slows around that holiday period."

It makes it difficult to determine exactly what is impacting transaction volume in China at this time. "There is going to be an impact when planes are being halted in and out of China and you are constantly reading, as we are, that companies are telling employees to stay home. So even in the e-commerce world, if employees are staying home, who is picking out the goods and shipping them?" Kelly said.

Visa will brace for any impact, but it is a matter of time to see how long the virus takes hold and what decisions are made about it, Kelly added.

For the quarter ending Dec. 31, Visa reported a $2.04 billion in operating expense, a rise of 14% that made investors jittery because it caused revenue projections to fall short. Visa execs acknowledged more spending on rewards incentives for cardholders, travel benefits and services, and Kelly said the effect of exchange rates on incentive deals with issuers is always "a balancing act to get it to the right level."

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Still, Visa reported a 10% increase year-over-year in first quarter revenue at $3.3 billion, while net revenues were $6.1 billion, also a 10% increase over the previous year. Visa said payments volume for the quarter rose 8%, while cross-border volume went up 9% and processed transactions grew 11% to 37.8 billion transactions.

In addition to strong consumer spending trends, Kelly lauded growth in emerging markets, contactless payments, e-commerce click-to-pay, and B2B transactions and integrations through Visa Direct.

Kelly also called out Visa's work in emerging markets, saying Visa has supported mobile wallet adoption in Africa through a collaboration with MFS Africa, a mobile money connectivity hub. That partnership has resulted in a single API integration that enables Visa payment credentials to more than 180 million mobile wallets on the continent.

In the future, Visa intends to obtain a minority stake in Interswitch, a company focused on digital payments that processes more than 80% of domestic transactions in Nigeria and sells payments processing across 23 other countries in Africa while operating a large debit network scheme, Kelly said.

As for contactless payments, Visa continues to push tap-to-pay and notes that one in every three card-present transactions on its network is now through a contactless tap, an increase over one-in-four a year ago.

"This past year, we have doubled the number of countries whose face-to-face transactions are at least two-thirds contactless," Kelly said. "Transit continues to be a key user case and an important way to make tapping behavior a habit."

In locations in which tap payments are accepted on New York City transit, Kelly said, Visa saw two million tap payments in November at the beginning of the pilot and three million in January. The technology is expected to be available throughout the city's entire transportation system at the end of 2020.

Visa execs said the card brand has stuck to its core acquisition or partnership philosophy of taking a close look at a company's personnel, technology and potential for the card brand. In that regard, the acquisition two weeks ago of data company Plaid for $5.3 billion does not represent a more aggressive approach. Rather, it was a move that puts the card brand in a position to compete in the gig economy, with real-time processing and building new products for technology clients.

In addition to acquiring Plaid in the quarter, Visa also completed its 2019 purchase of token services provider Rambus.

Visa has changed its perception of startup technology firms that may have initially been considered potential disruptors or competitors. Kelly has made it clear that Visa now sees innovation startups as potential partners, especially in terms of global reach and scale.

Aside from fears of a coronavirus outbreak, business in China for the American card brands remains on a slippery slope. To date, no one has a clear grasp on whether trade war rhetoric could turn for the better or worse.

Visa has been trying for the past few years to land an operating license in China, a region the company has long coveted as one with unlimited opportunities for payments companies offer processing as well as physical, mobile and digital payments, money transfers and security measures.

In an accompanying press release, Visa also updated investors on the estimated $6.2 billion class-action settlement late last year in the merchants' years-long antitrust case against Visa and Mastercard.

"While the district court’s order is a significant step toward resolving this long-running litigation, the case is not yet fully resolved as several objectors have filed notices to appeal the district court’s decision," Visa noted. "In addition, claims by merchants that opted out of the class settlement and by a class of merchants seeking injunctive relief against certain of Visa’s rules and practices remain pending."