Visa Inc (V) 2012 Q1 法說會逐字稿

Welcome to Visa Inc.'s fiscal Q1 2012 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, Mr.

Jack Carsky, head of Global Investor Relations.

Mr.

Carsky, you may begin.

Good afternoon, and welcome to Visa Inc.'s fiscal first-quarter 2012 earnings conference call.

With us today are Joe Saunders, Visa's Chairman and Chief Executive Officer, and Byron Pollitt, Visa's Chief Financial Officer.

This call is currently being webcast over the Internet, and can be accessed on the Investor Relations section of our website at www.investor.visa.com.

A replay of the webcast will also be archived on our site for 30 days.

The PowerPoint deck containing highlights of today's commentary was posted to our website prior to this call.

Let me also remind you that this presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

By their nature, forward-looking statements are not guarantees of future performance and, as a result of a variety of factors, actual results could differ materially from such statements.

These include setbacks in the global economy and the impact of new financial reform regulations.

Additional information concerning these factors is available on our last 10-K on file with the SEC.

It can be accessed through the SEC website and the Investor Relations section of our website.

For historical non-GAAP or pro forma-related financial information disclosed on this call, related GAAP measures and other information required by Regulation G of the SEC are available in the Financial and Statistical Summary accompanying today's earnings press release.

This release can also be accessed through the Investor Relations section of our website.

And with that, I'll turn the call over to Joe.

Thanks, Jack, and as always, thank you for joining us.

I plan to walk you through three key areas during today's call.

First, I'll provide a brief update on Visa's financial performance and outlook, including some perspective on key environmental and event-specific factors that could impact our business over the balance of fiscal 2012.

Following that, I'll walk through our progress with growing Visa's core business, both in the United States and internationally, including an update on US debit.

And finally, I'll discuss Visa's investments in innovation, which can help us expand our core business and generate new revenue streams.

Visa's global enterprise outpaced our own expectations during the first quarter -- an encouraging opening to our fiscal year.

Net operating revenues were $2.5 billion, a 14% increase over the same period last year.

These revenue gains were driven by robust growth in our international businesses, continued resilience in US credit, sustained cross-border spending, and strong eCommerce growth.

Net income for the quarter was $1 billion, a 16% increase over last year.

This equates to diluted earnings per share of $1.49 or a 21% increase over the first quarter of 2011.

Overall, our first-quarter performance clearly demonstrates the strength and resilience of Visa's global model and our ability to grow even in a challenging global economy.

When we look ahead to the rest of fiscal 2012, it is clear we must carefully navigate a complex and uncertain business environment.

We see signs of modest global GDP expansion for the rest of our fiscal year, with emerging markets continuing to grow at rates faster than the global average.

That being said, we are closely watching economic conditions that could impact our business, including continued volatility in Europe.

Additionally, we are still working through the implementation of debit regulation in the United States.

I will provide details shortly, but it's fair to say the dust is still settling.

Overall, Visa is successfully executing its plan, and I continue to be encouraged that the net impact is consistent with our guidance outlook.

Taking these macro and issue-specific factors into account, as well as our better-than-expected first quarter, we are raising our FY '12 revenue guidance to low-double-digit growth from high-single to low-double-digit growth, and our adjusted diluted earnings per share guidance from mid to high-teens to just high-teens.

As I stated last quarter, we are reaffirming our belief that 2012 will take the brunt of the impact related to the US debit regulation, and growth in 2013 will accelerate off of 2012 levels.

And based on that outlook, we continue to deliver our commitment to return excess cash back to shareholders.

We used $1.6 billion of our operating cash to reduce the as-converted Class A common stock by 16.2 million shares during the three months ended December 31, 2011.

Of the $1.6 billion, $75 million was used to repurchase Class A common stock in the open market, while we deposited $1.57 billion of our operating cash into the litigation escrow account previously established under the retrospective Responsibility Plan.

Looking ahead, our Board has authorized an additional $500 million share repurchase authorization.

Before moving on to our business update, I'd like to briefly address the Merchant litigation in the United States.

Although I am constrained to discuss the details due to the confidential mediation process, I can tell you that I believe that with the court's assistance, progress is being made towards resolution of all issues.

After our latest escrow deposit in December, we now have an uncommitted balance of $4.3 billion in our litigation escrow account, which is consistent with our view of the current status of mediation discussions.

Visa is unwilling to agree to any significant or long-term credit interchange rate reductions or any settlement agreement that doesn't provide a full resolution to that and other key issues.

Although progress is being made, there are uncertainties which continue to exist, and accordingly, in our judgment at this time, the Company believes that a loss is not probable and estimable under GAAP.

Now let's turn to the business update.

During the first quarter, Visa continued to accelerate the migration to digital currency by successfully executing our growth strategy of expanding our core credit, debit, prepaid, and commercial businesses; expanding acceptance; extending our international reach; and aggressively investing in innovative next-generation payment technology.

Worldwide, Visa's credit and debit payment volumes grew 12% and 9%, respectively, on a constant dollar basis this past quarter.

In the United States, volumes on all Visa products grew 7% during the quarter.

In regard to our US debit business, I feel very good about where we are and the progress we've made adapting our business to the new debit regulations.

We are making the best of an obviously negative event.

That being said, I'd like to share some important observations.

Historically, we have always been a clear leader in the US debit market, and thus, are the primary participant with downside risk.

As we have acknowledged previously, regulation will reduce Visa's US debit volumes.

The new legal requirements are changing competitive dynamics, and requiring all issuers to place competitive marks on their cards in order to comply with the law.

While the law and doesn't require compliance until April, some issuers have already begun to make the change.

The deceleration of our US debit volume growth during the first quarter was an early sign of this impact, driven by slower growth in PIN transactions and an expected de-emphasis by issuers of debit card, marketing, and debit rewards programs.

A key driver of this slower growth was one major financial institution's decision to remove Interlink from the back of their cards, which began in the fall as part of their own plan to comply with the regulation.

They and Visa will be able to compete for PIN transactions with the PIN authentication available on Visa check cards.

While we are taking these impacts seriously, let me also be clear about a few additional facts that give me confidence about our long-term growth, as we advance our debit strategy in the new environment.

To begin with, we are making steady progress advancing our strategies through an issuance and merchant routing.

We are aggressively pursuing a back-of-card strategy that adds Interlink to many existing cards that currently carry competitive brands.

In fact, we're poised to sign new agreements with major financial institutions to secure back-of-card placement.

We look forward to updating you on our progress securing these decisions in the coming quarters.

At the same time, we remain on track to maintain our front-of-card issuance relationships; and, in fact, have extended the majority of those major relationships to 2015 and beyond.

Signature transactions generate a far larger share of our US debit revenue and offer greater revenue yields.

This is particularly important as we see no sign of a wholesale shift to PIN debit by the merchant community, and our signature debit volumes were resilient during the first quarter.

On a parallel track, we are moving forward with strategies to compete for merchant routing decisions.

One key aspect of that plan is Visa's previously announced program to modify acceptance economics in the United States, which we believe will offer merchants greater incentive to route transactions over our network in an opportunity to lower their per-unit transactions costs.

As a next step in our implementation plan, we will share specifics with acquirers and merchants later in the month.

Our updated 2012 guidance takes all of these factors into account, including some loss of debit share, and I'm confident that we've appropriately scoped the impact of Durbin.

As stated earlier in my remarks, we expect that 2012 will take the brunt of the impact related to US debit regulation, and we still expect growth in 2013 to accelerate off of the 2012 levels.

Bottom line, I'm confident we are moving in the right direction.

We have a smart debit strategy, and we are executing it successfully.

Now let's focus on credit products in the United States, which performed very well during the quarter.

Payment volumes increased by 10%, the eighth consecutive quarter of positive growth and third consecutive quarter of double-digit performance in that category.

Additionally, affluent credit in the United States posted particularly strong payment volume growth, increasing more than twice as fast as the overall category during the two most recent quarters.

A key differentiator and important contributor to our success is our unsurpassed portfolio of co-brand products, which are also outperforming the category, and clearly driving consumer loyalty and gaining further traction in the market.

We also grew our portfolio by building on existing long-term relationships and winning several important new US credit mandates during the quarter, and are excited for those to appear in the market in the near-term.

Prepaid also continues to be another area of strength, posting robust volume growth during the first quarter.

We signed a number of agreements that will drive future growth, including multiple mandates in two of the fastest-growing segments in the prepaid category -- general purpose reloadable cards and employee benefit programs.

For example, we extended our relationship with Green Dot, the largest program manager in prepaid.

In addition, our government prepaid programs continue to thrive.

The Washington, DC Department of Employment Services recently announced that all new recipients of unemployment insurance benefits will have the option to receive automatic payments on Visa prepaid cards.

In addition, we recently added Connecticut, South Carolina, Georgia, and Louisiana to the list of states offering programs to distribute state income tax refunds on Visa prepaid cards.

Overall, approximately 40 states are using or are in the process of implementing Visa prepaid card programs, to disburse a range of benefits through more than 80 programs.

In fact, approximately 30 of 38 state unemployment insurance card programs and 31 of 49 state child-support programs can be delivered on Visa cards today.

Building on that, we are rapidly expanding our government activities in key geographies worldwide.

Now let's turn to Visa's international business, which continues to be an increasingly important growth driver for our organization.

International geographies posted healthy payment volume gains of 15% on a constant dollar basis, and drove approximately 66% of Visa's revenue growth this quarter, and now represent 46% of Visa's net revenue.

This means we continue to make steady progress toward our stated goal of deriving 50% of Visa's revenues from international businesses by 2015.

Yet again, our performance in Latin America stands out, with continued strong growth.

Payment volumes grew by 22% on a constant dollar basis during the quarter, and we are building on that momentum by winning several important client mandates.

In Mexico, Visa signed an extensive partnership contract with BBVA Bancomer to expand our long-standing relationship across a broad suite of products and services.

This client is Visa's largest issuer and acquirer in Mexico, as well as the largest financial institution in the country.

Turning to SAMEA, we were pleased to win a major long-term mandate with Al Rajhi Bank, covering around 50% of all payments volume in the Kingdom of Saudi Arabia.

The agreement, the largest we've ever signed in the Middle East, is exclusive for debit and prepaid, and covers the vast majority of that institution's credit products.

We're also continuing to invest in the long-term growth of Africa.

Without question, Visa's existing product offerings and our unrivaled network provide us with a strong foundation to push our financial inclusion agenda forward.

Additionally, Fundamo and our partnership with Monitise provide us with a footprint and technical expertise in emerging economies.

I firmly believe no organization is better positioned than Visa to lead forward the migration to digital currency on the African continent.

An example of our progress was our November launch of a prepaid account that can be accessed through a mobile phone, offering consumers in developing countries a secure, reliable, globally-interoperable electronic payment account.

MTN Group, a leading telecommunications provider in Africa and the Middle East, plans to offer the new Visa product to MTN Mobile Money customers across its markets.

As part of the launch, the new product will first be available to customers in Nigeria and Uganda.

Additionally, Fundamo is supporting our unique partnership with the Rwandan Government to drive access to financial services for consumers in that country.

And in Asia-Pacific, we continue to build steady momentum in our prepaid business, with two prominent examples coming from Australia during the quarter.

With Australia Post, we executed a multi-year exclusive agreement for their general-purpose reloadable and travel product.

We also won a mandate with A&Zed for a multi-currency travel program, allowing consumers to load up 10 different currencies on a single card, and lock in exchange rates, giving a cardholder even greater control over their travel budget.

Importantly, Visa processing services was a critical part of our agreement with A&Zed, helping advance Visa's overall strategy of expanding processing penetration worldwide.

Lastly, let's talk about Visa's innovation agenda.

We continue to invest in new technologies that will increase the number of transactions on our core business products, add incremental value to the merchant community, and create new revenue opportunities for both Visa and our clients.

In the United States, Visa is focused on offering consumers a seamless and secure payment experience, whether they're paying at the point-of-sale, with a card or phone, or buying digital or physical goods online.

The key to that approach is VDotMe, our newly branded wallet service and global acceptance mark, which is a top priority for the organization.

And we are moving swiftly towards broad commercial availability in 2012.

As I said previously, our top priority with VDotMe is to advance our click-to-buy and touch-to-buy functionalities, including aliasing capabilities.

This functionality will immediately increase ease-of-use and convenience for consumers, while offering merchants and financial institutions the greatest business value.

Longer-term, VDotMe will offer our clients a range of payment-related capabilities that can be tailored to meet each organization's specific needs.

So where are we?

During the quarter, we took an important step towards consumer availability, initiating a beta version of VDotMe with close to 1,000 Visa employees and certain key partners.

In the coming weeks, we will be expanding the beta group and start the implementation with a few brand-name merchants.

Of course, scaling VDotMe will require a buy-in from the broad merchant, acquirer, and issuer communities.

To that end, we are directly engaged with more than 100 major merchants to discuss and test the product.

We are also integrating VDotMe with our CyberSource gateway, which will quickly enable access for 380,000 online merchants.

In addition, we will extend this capability to our other acquirers and reseller partners.

At the same time, we are engaged in productive conversations with several major issuers who are showing genuine enthusiasm for the product as an offering for their clients.

I look forward to providing updates in the coming quarters.

We're also making platform enhancements that pave the way for broad adoption of the payment-related services on mobile devices in the near-term.

Today, we announced that hundreds of financial institutions using a combination of Visa issuer processing platform, Visa DPS, and monetized mobile applications, can immediately offer a range of payment-related mobile services to their account.

These can be accessed via almost any mobile device and operating system.

This effectively makes our DPS platform a one-stop shop for mobile services within the issuing community.

Immediately available services include monitoring account balances, transferring funds between accounts, and instant alerts on mobile devices.

We have plans to deploy additional offerings, including mobile check deposit, NFC payments, mobile offers, and support for VDotMe.

We are also investing in Mobile Money Solutions outside the United States.

Here, Fundamo is a key to our efforts, as they are a global leader in deploying mobile payment platforms for developing markets worldwide.

During the quarter, Fundamo secured deals with mobile operators and banks in several geographies around the globe, including Nigeria, Indonesia, Bangladesh, and Pakistan.

On the eCommerce front, Visa is clearly benefiting from an increasingly strong secular trend towards online shopping, and our acquisitions of CyberSource and PlaySpan favorably position Visa to accelerate that growth.

In fact, CyberSource's billable transactions totaled $1.2 billion, a very strong 25% growth rate over the same period a year ago.

We secured a number of new business wins with major partners in the United States, including American Apparel, autotrader.com, and Shutterfly.

Outside the US, CyberSource continues to gain traction.

For example, in China, we've expanded our relationship with 99Bill, one of that country's leading electronic payment service suppliers, a prime example of how Visa is partnering with leading local providers to deliver value to the payment's ecosystem in that country.

99Bill has just gone live with CyberSource's Broad Management Solution, CyberSource Decision Manager, and is using CyberSource services to complement their existing security systems to process cross-border transactions safely, as they expand business overseas.

So to sum up, Visa has continued to demonstrate the underlying strength of our business model.

Visa continues to grow.

We have expanded our core business lines.

We have expanded our footprint in international markets, both emerging and established.

We have increased our investments in innovation to help us carve out new revenue streams for the future.

And we have taken important steps in our relationship with the merchant community to help foster greater cooperation in the future.

Each of these achievements helps us continue to deliver against our stated mission of offering more payment choices to more people in more places around the world.

Now I'd like to turn the call over to Byron, who will walk you through the financial details of our quarter.

And then we can take some of your questions.

Byron?

Thank you, Joe.

I'll begin with some overall observations and call-outs.

First, Visa's 14% net revenue growth in the first quarter was once again broad-based and encouraging, with solid 8% growth in the US and a very strong 22% growth rate in rest-of-world.

Approximately 66% of the quarter's revenue growth came from outside the United States, and non-US revenue in the quarter was 46% of Visa's total.

Second, US revenue growth has been supported by eight consecutive quarters of positive credit payment volume growth.

Most recently, the months of November, December, and January comped at 12%, 10% and 10%, respectively, which continues the strong growth we have now seen for two years.

Third, client incentives for the quarter as a percent of gross revenue were 16%, below our full-year guidance as a result of lower-than-anticipated Durbin-related incentives, and a lower level of deal activity in the first quarter versus the out-quarter.

Fourth, note that we are reporting the quarter using a 36% tax rate, above our full-year guidance of 33% to 34% on an adjusted basis.

We will begin reporting at this lower level once California officially adjusts its tax rate calculations, which we anticipate will be in fiscal Q2.

Finally, fifth, for EPS calculation purposes, the as-converted share count reduction, driven by the escrow deposit, took effect on December 29, and therefore, had no noticeable impact on the fiscal Q1 EPS calculation, but will have a full effect for the balance of the year.

Now, let's turn to the numbers.

As is our practice, I will cover our global payment volume and process transaction trends for the December quarter, followed by our results through the end of January.

I'll then cover the financial highlights of our fiscal first quarter, and conclude with our guidance outlook for fiscal 2012.

Global payment volume growth for the December quarter in constant dollars was 11%, modestly below the September quarter's 13%.

We saw the following breakdowns in the December quarter.

In the US, payment volume growth was 7%, a modest decrease from the 9% growth we saw in the September quarter.

This was comprised of 10% credit growth and 5% debit growth.

So, we are beginning to see some modest effect on debits from the recently-enacted Fed rules.

Rest-of-world payment volume on a constant dollar basis grew at 15%, supported by double-digit growth rates in both debits and credits.

More recently, in the month of January, US payment volume growth came in at 7%; credit growth was 10%; while debit was 4%.

Although not yet available, based on the trends we saw during the fourth quarter, we expect rest-of-world payment volume growth will continue to exceed the US by a comfortable margin.

Global cross-border volume delivered a solid 13% growth rate on a constant dollar basis in the December quarter, with the US growing 11% and the rest-of-world 14%.

The recovery of inbound travel to Japan, the Middle East, and North Africa continues, and the longer-term sustainability of these trends appears to be on track.

In January, cross-border volumes on a constant dollar basis grew 15% with uptick, and the US growth rate to 13% and rest-of-world 17%.

Transactions processed over Visa's network totaled $13.6 billion in the fiscal first quarter, an 8% increase over the prior-year period compared to 9% growth in the September quarter.

Here again, we are beginning to see the impact of the new debit rules.

For the month of January, process transaction growth moved back up to 9%.

Now turning to the income statement.

Net operating revenue in the quarter was $2.5 billion, a 14% increase year-over-year, driven by strong growth in global payment volumes, better-than-expected data processing revenues, and lower-than-anticipated flight incentive.

The foreign exchange impact on net revenue in the quarter was a positive 1%.

Moving to the individual revenue line items, service revenue was $1.2 billion, up 14% over the prior-year period.

This is reflective of strong payment volume growth in the September quarter.

Data processing revenue was $951 million, up 13% over the prior-year's quarter, based on strong transaction growth rates for both Visa process and CyberSource transactions.

On that note, CyberSource posted a 25% gain in transactions over the prior-year's quarter, benefiting from Visa's eCommerce transaction growth, which approximated 24% for the quarter.

International transaction revenue was up 19% to $748 million, reflecting continued strength in cross-border volumes, above-average currency volatility during the period, and modest strategic pricing adjustments outside the United States.

As I highlighted earlier, client incentives (technical difficulty) came in at 16%, below the range of our full year guidance, but consistent with our full-year outlook of 17% to 18%.

Total operating expense for the quarter was $929 million, up 7% from the prior-year.

This was primarily due to higher personnel, network, and processing costs associated with investments in our growth strategy.

Our operating margin for the quarter was 64%, ahead of our full-year guidance of about 60%.

This is largely due to expense timing, as we expect a ramp-up in investment spending and marketing associated with the Summer Olympics.

Capital expenditures were $66 million in the quarter.

We expect CapEx to ramp-up over the course of the year, and remain comfortable with our current guidance of $350 million to $400 million for the year.

Finally, as noted earlier, our tax rate for Q1 was 36%.

However, we expect the benefits previously discussed from a lower state rate and foreign tax credits to be applied in future quarters results, retroactive to Q1; thereby, more accurately reflecting our full-year guidance of an adjusted 33% to 34% range.

As Joe mentioned, we were active buyers of our stock during the quarter, repurchasing approximately 800,000 shares at an average price of $89.91 in the open market.

The escrow funding of $1.57 billion resulted in a change to the conversion rate of the Class B share, which equates to a reduction in the as-converted Class A common stock of 15.4 million shares, effective December 29.

At the end of the December quarter, we had 672 million shares of Class A common stock on an as-converted basis, which incorporates the impacts of the escrow funding and open market purchases.

Fully diluted shares outstanding totaled 690 million for the December quarter.

Visa remains committed to returning excess cash to shareholders.

And to this end, as Joe mentioned at the outset, our Board of Directors authorized a new $500 million share repurchase plan.

Finally, we are making two changes to our guidance for fiscal 2012.

The outlook for net revenue growth is now in the low double-digit range, and for adjusted diluted EPS growth, it is now high-teens.

All other guidance metrics remain as presented last quarter.

As the year unfolds and we have additional clarity around the results of our Durbin debit strategies, as well as US, global, and global economic momentum, we will be in a better position to refine this guidance as necessary.

And with that, Operator, we are ready to take questions.

(Operator Instructions) Craig Maurer, CLSA.

I had a question on the tax rate beyond the current year.

Could we see that fall below your adjusted 33% to 34% range, considering the changes that are coming?

And secondly, marketing was dramatically below what I was thinking about for the quarter.

So I was hoping to get your thoughts there regarding what opportunities did present themselves in the quarter, and if your thought process changed for the year?

Thanks.

For tax, it's a little early to make that call since we've got this year to play out; but we will -- rest assured, we will address tax guidance for the coming year in the next couple of quarters, which is our practice.

With regards to marketing, no change -- think of this as timing.

Our guidance hasn't changed.

We have the Summer Olympics coming up, and we are re-phasing our marketing spend to coincide better with the Olympics and the promotions that come in advance.

So you should expect to see some movement on the marketing line in fiscal quarters two and three, commensurate with that.

Darrin Peller, Barclays Capital.

You know, I mean, volume trends look like they've held up pretty well, especially into January.

And then we have a guidance change, especially on both the top-line and not EPS.

Do you think that the guidance is more -- or the change is more reflective of really more benign impacts of maybe the debit regulations as was included in your previous guidance?

Or is it more macro-driven?

And I guess the follow-up question to that would be, is there more room around the rebates, maybe -- the 17% to 18% just conservative on the rebates, because maybe the debit environment or the Durbin environment effects were not as bad as expected?

Thanks.

So let me take that.

This is more a reflection of how some of the risk that Joe and I called out on the last quarter's earnings call, how some of those risks are playing out.

Recognizing that we have a one-quarter lag on our service fees, that means we've already got a line of sight into seven months of that revenue.

Cross-border volumes have held up very well.

With regards to both the US and the global economy, both have demonstrated sustained momentum.

The exciting drama unfolding in Europe has yet to really play out on the volumes.

And so the guidance adjustments are more a function of having a portion of our year with a clear line of sight, and some of the risks we were most concerned about, where we're getting well into the fiscal year and they haven't materialized to the degree that -- we had to at least contemplate when we gave the initial guidance.

Glenn Fodor, Morgan Stanley.

Joe, thanks for the color on the issuer loss.

Was this the ultimate result of a holistic view by the issuer that under no circumstances would they pursue a dual strategy?

Or was this a case you wouldn't go as low as they wanted on price?

And secondly, can you give us a sense of what portion of your exclusive PIN debit issuers still have to make a decision?

And what type of win rate have you assumed in your guidance?

Well, getting back to the particular issuer that we talked about, it was -- I think it's fair to say that it was just a decision about how they were going to comply with the law, and knowing, to a certain extent, that our accepting PIN numbers on signatures cards, as we've always done, was an opportunity.

I think it was just their way of rationalizing how they wanted to go forward.

It wasn't a price issue.

And then what was the second part of the question?

I'm sorry.

How many still to go -- have to make the decision?

Yes, on removing Interlink?

I think that -- I think most of them have made their decision.

There is no other major issuer that has Interlink on the back of the card that's contemplating taking it off.

And we have had several wins on putting the Interlink mark on the back of non-Visa debit cards.

And that will manifest itself certainly no later than April 1.

But again, I can't really talk about it.

We're in the final stages of several contracts and they don't like us to disclose who they are.

Tien-Tsin Huang, JPMorgan.

Everything looks really clean here.

I just wanted to ask on the client incentives, you said they were running below the full-year target.

Should we expect it to spike again around April 1 exclusivity date?

Just trying to get some help with the quarterly spread.

And just as a follow-up to that for Joe, you said that the dust hasn't settled.

Is it fair to interpret that to mean -- how should I say it?

-- that you haven't started playing defense yet with your MPFs for the VPIN strategy?

Are the issuers and the acquirers open to both?

Just wanted to get a little bit of color on that.

(multiple speakers) The second part of the question first and then Byron can answer the first part of the question.

When I said the dust hasn't settled, I also suggested that I'm very happy with how we've implemented our strategies.

And I am very happy about that.

And things appear to be playing out quite well in that regard.

But until we get to the end of the year and we see exactly what the actual results are, I mean, there is some ambiguity.

Although changing our guidance and expressing a degree of confidence would suggest that we're pretty happy with where we are and with what's going on.

Tien-Tsin, I would say that it clearly weighted to the second-half of the year after April 1.

If you think in the context of -- a portion of these incentives are assigned to merchant routing and they trigger when the routing is successfully sent Visa's way.

That's going to weight a portion of the incentives that really hasn't -- isn't as relevant in the first two quarters of the year, relative to the second.

And then the rate of deal activity, which has nothing to do with Durbin, but has to do with the ongoing course of our business, primarily credit, both in the United States and outside the United States, that level of deal activity was just less than we anticipated in the first quarter.

And so that will just carry forward into quarters two, three, and four.

So we reaffirmed our guidance at 17% to 18%.

We still feel good about that.

No real call-outs; just timing.

Jamie Friedman, Susquehanna.

Thank you for taking my question.

So Joe, you mentioned that you've been happy with your strategy implementation.

Byron, you mentioned that the Durbin incentives were lower than you had modeled.

I guess, if you had to summarize it, at this vantage point, has Durbin turned out to be better, worse, or the same than you had originally contemplated?

Well, I think it's modestly better than what we had contemplated.

I think that the implementation of our strategies put us at the better part of that -- which is what I've said about the regulation pretty consistently.

So, I don't know -- I just -- I don't know how to put it in total perspective because, as I said earlier, we've got to see what happens.

In some cases, there's been accelerated early adoption, and in some cases, there's been less early adoption.

And I think it appears like it's going to even out and it appears like things will occur in a manner that we've anticipated.

When I say that, I'm not really factoring in the potential positive effect of some of the things that we've done to drive volume to us over time.

And we'll have to see how that works out with the -- through the acquirers and the merchant community.

Bryan Keane, Deutsche Bank.

I guess one question for Joe and another for Byron.

I guess, Joe, what kind of impact do you expect in the model with the change in pricing that's going to go on, on April 1?

And I know it's going to be a change in pricing for all products -- it's not just debit; I know it includes credit.

So I'm just curious on what kind of impact do you think that it will have?

And then, Byron, when we look at the international revenues, they're now, for two quarters in a row, growing faster than the cross-border volume growth.

Is that just better pricing that we're getting?

What is driving that phenomenon the past two quarters?

Thanks.

I mean, so let me answer the international one first.

So we recorded nominal growth at 12% and there was a 19% increase in revenue.

Whenever there is significant above-average currency volatility, then our revenue stream trends up.

And then -- and so that's the primary delta that you are seeing.

It doesn't have anything to do with our pricing.

It's much more a function of currency volatility, and that has largely been courtesy of Europe and the unfolding drama around the euro.

With regards to -- let me see if I understand the question.

On balance in US debit, when you combine the fixed acquiring network fee with the lower variable transaction fees associated with US debit, this constitutes a net price reduction.

And that has been completely folded into our guidance.

Rod Bourgeois, Bernstein.

So have your common switch plans and network participation fee plans met any meaningful obstacles?

And could you provide more specifics on how the common switch and network participation fee will be implemented, presumably in upcoming months here?

I think that what we've done, we've announced two quarters ago and we've consistently talked about.

I think any time you change the paradigm that there's probably some consternation somewhere along the way.

But in general, we've met with -- it's been pretty benign and we've met with favorable receptivity.

I would say out of our largest merchants, there are a significant number of them that have signed contracts with us, that anticipate the fixed fee and they're fine with it.

I mean, I suppose that doesn't mean that they won't complain about it later, but that's kind of the history of our business.

As it relates to that, we're putting -- officially we'll put out the specifications for that in about the -- in the next week.

As it relates to fully activating the PIN capability on the Visa debit card, that will begin on April 1.

And all of those things are going along as we anticipated, as we had planned.

We're very happy with the way that it turned out.

And as you might expect, I mean, there's been a lot of water that's gone under the bridge; they're both complicated paradigms.

As Byron says, we feel that we're in a much better position in the long run with a modest fixed fee and a lower variable fee.

We believe that that suits merchants in a much more compatible way than in the past, because they can take advantage of economies of scale.

It is not a price increase, as we speak today, as it relates to the PIN capability on the signature card.

That seems to be the way things are moving, as a capability that we have.

And we're very comfortable with that as well.

David Togut, Evercore Partners.

Joe, could you highlight some of the innovation you have planned on the credit side?

You indicated that credit volume growth was twice what debit was in the US in December, and much of the growth came from the affluent.

So how do you see the competitive battle shaping up in US credit versus MasterCard, particularly on the affluent side?

Well, when I look back over the last two or three years, I mean, I'm very comfortable with how we have fared and what we've done.

Based on a number of things that I talked about in my remarks, I'm very bullish on where we're going to wind up in 2012 as a result of some new transactions that are on the cusp of occurring.

That doesn't mean that I don't consider MasterCard to be a formidable competitor, because they are.

It doesn't mean that every time we get involved in a transaction that we'll win and they'll lose.

But I'd have to say as it regards credit, we're in a pretty good position.

Remember, we've talked the last two quarters about the United/Continental merger and our win in that regard.

I think, as I mentioned in my remarks, we have the best array of co-branded partners period.

And that is what's driving a lot of the growth.

So, we've feel like we're in a very good position.

We don't feel that that's a position through which we can rest on our laurels.

We do believe that VDotMe and the wallet and the single click is going to make a difference in the credit card world as well as the debit card world.

So I think we're trying to move forward in a very measured way, and we're pretty excited about our prospects.

And the same goes for our international business.

Ken Bruce, Bank of America Merrill Lynch.

My question actually kind of follows on to that last one.

In terms of the trends that you see within debit and credit, are you able to tell if this growth in credit is -- whether it be affluent or a broader growth in credit?

You said there's actually consumers making a conscious choice to pick up a credit card versus a debit card; just as you think about those different trends, are you seeing anything that is fundamentally where consumers are choosing a credit card over a debit card?

Or if that's just that a selection that issuers are pushing more credit cards versus debit?

Well, remember, the credit card volume has been growing quite robustly for several quarters now.

And so you certainly couldn't attribute what's happening f in that product totally to Durbin and people switching.

And it's too early to tell, in looking at the volumes, exactly what kind of switch there may be.

Anecdotally, of course, you know that rewards have been removed from debit cards and rewards exist on credit cards.

So they're probably -- I mean, just logically, you'd have to assume that there's some movement in that regard.

Some of that's constrained by the credit-worthiness of the individuals and their credit lines.

And so it's pretty complicated environment and it's a little bit difficult to say.

Obviously, issuers seem to be pushing their credit businesses a little bit more strongly or a lot more strongly than they do their debit businesses at this point in time, which is what one would expect.

So I think that the jury is still out about how much something moves from one to the other, but I think it's pretty clear that you're going to see strong credit card growth, at least from Visa, in the foreseeable future.

Julio Quinteros, Goldman Sachs.

Byron, this is directly for you, I guess just in terms of the numbers -- and I apologize if I missed any of this -- but the 9% processed transaction growth versus the 13% data processing revenue growth -- obviously, via the effects of Durbin and some of the impacts there on debit are a big part of the decline in process; but the spread relative to the revenue growth was actually much better than expected.

So, just some color in terms of why that spread went the way that it did, and for how long would this actually continue to persist before you see it fully anniversary?

Yes.

So the data processing fees grew at 8%, but we reported, at the gross level, data processing fee growth of 13%.

Of that delta, I would say 60% of it is due to the addition of CyberSource and PlaySpan transactions into the data processing line.

And the other 40% is due to value-added services that show up in the other fee category of data processing.

And so those -- that explains 100% of the premium that we are earning above the growth -- the underlying growth in data processing transactions.

And I would expect that that premium -- certainly, the CyberSource and PlaySpan piece will continue.

We'll have to see how that plays out in the second-half of the year, as we see much more impact from -- or potential impact from implementation of the federal's.

Jose, at this point, we have time for one more question.

The last question does come from Bill Carcache with Nomura.

Your line is open.

I'd like to follow-up on some of your comments about Fundamo and your investments in mobile money.

Does what you're doing there influence your relationship with Western Union in any way?

And can you update us on whether you expect to be able to deal with some of the AML issues that arise in mobile money transfer?

And just more broadly, can you comment on where you see the costs of electronic money transfers going, especially in comparison to the -- that 500 to 600 basis points of revenues per dollar of volume that Western Union has traditionally generated?

Thanks.

I don't think that there's an absolute connection between Fundamo and Western Union and the Western Union type of business.

Remember, I think Fundamo is an incredible part of our future.

I think that using mobile technology to -- as an access point to Visa prepaid cards in emerging economies, where there's a lot of under-banked people, is just one of the most incredible things that I've seen coming along in quite some time.

As it relates to money transfer and Western Union, we are much more heavily involved with Western Union today, and will be in 2012 than we really ever have been before.

And we are doing a number of things with them in some of the -- as it relates to money transfer in some of the emerging economies.

And I'm going to kind of leave Western Union at that.

But we also, as you know, do business with MoneyGram.

I mean, we are -- we're pretty invested in the money transfer business for the un-banked.

We are aware of the issues that surround the transfer of money and the protections that are required, and so forth and so on.

And we're doing things through people that have those infrastructures.

And we're happy where we are right now.

Let me say we are -- we're happy to be doing what we're doing and we will continue to endeavor to.

Well, thank you all for joining us today.

If anybody has follow-up questions, feel free to give Investor Relations a call.

Thank you.

Thank you for your participation in today's conference call.

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