Visa CEO welcomes big payments M&A with open arms

Visa’s not worried about the massive consolidation that’s sweeping the payments industry, seeing it as a force to extend payments innovation globally.

FIS has agreed to acquire WorldPay, and Fiserv has reached a deal to buy First Data, in just the past few months. The deals are worth billions — combining bank technology, which includes card issuance; and processing, which includes merchant acquiring.

It's expected these deals will lead to more consolidation as processors and core banking vendors seek to fill gaps in their business models, a merger trend that could eventually impact the card networks as debit networks could be a focus of upcoming M&A deals.

Visa at this point sees the deals as a welcome development.

“We have a good relationship and a good history with all four of these players,” said Visa CEO Alfred Kelly during Wednesday’s earnings call. “By coming together, we’ll have a small number of high scale players.”

Kelly said he's communicated with the CEOs of all four companies recently, in an effort to spot synergies that could encourage collaboration.

“Both combined sets of companies are interested in growing their global footprint, which is good for the payments ecosystem,” Kelly said. “In a lot of these markets, there are not enough merchant acquirers.”

Visa did not comment on one of its own deals — its pending $320 million acquisition of cross-border payment company Earthport — which is under regulatory review in the U.K.

For the second fiscal quarter ending March 31, Visa reported revenue of $5.45 billion, up 8% from the revenue of about $5.4 billion a year earlier, but the smallest gain in 11 quarters. Earnings per share were $1.31, up 18% from 2018 and ahead of FactSect estimates of $1.24, according to Investors.com. Net income was $3 billion, up from $2.6 billion the prior year. Visa raised its full-year projection for growth to the "low 20's" from the upper teens.

Overall spending on Visa’s network was $2.09 trillion, up 3.5% from a year earlier and below the $2.2 billion expected in a Bloomberg survey. Cross-border spending increased 4% in the second quarter, down from the 7% growth in the prior quarter.

Kelly also addressed how the upcoming 2020 Summer Olympics in Tokyo will be way to showcase its next-gen payment technology, and potentially spark a national movement away from cash.

While Japan has a reputation for high-tech adoption, non-cash payments cover only 20% of Japan’s payments, and the Japanese government is using the Olympics as a rallying point to automate payments.

“We’re investing very heavily in Japan, we’re about 16 to 17 months from the Tokyo Olympics,” Kelly said. Visa typically tests new technology at the Olympics, and in Japan the event can be a way to change consumer habits.

Visa is working with banks and acquirers to embed itself into as many payment flows in Japan as possible, Kelly said, with collaborations including SMCC, one of Japan’s largest acquires. Transit is another area where Visa is investing to change consumer behavior — but this category is also being targeted by Apple, Mastercard and Google.

“In London, cardholders that have tap to ride for transit payments had a meaningful lift in overall card usage versus non transit,” Kelly said, adding Visa has launched “tap to pay” transit technology in 12 countries with 150 projects underway, noting payments get made about ten times per week, providing a gateway to digital adoption.

Adding new digital payment users can boost Visa’s tokenization service. Tokenization provides a one-off substitute for an account number, and is at the center of Visa’s digital migration and plans to build a single “buy” button for global digital commerce. Having a steady stream of new contactless payment users will encourage more markets and merchants to adopt tokenization.

“Consumers have better visibility and control, and we’re able to secure remote commerce,” Kelly said.