‘Digital gold’: Visa bets big on cryptocurrency

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Visa CEO Al Kelly detailed the card brand’s push to take advantage of trends such as central bank digital currencies and financial inclusion.

Visa is working with central banks on CBDC policy, and is advocating for public-private partnerships to support CBDCs, a model that many digital currency experts believe will be the prevailing model, particularly given the complex work required to digitize currency in different nations. Visa has filed a patent application for technology that would support connections between financial institutions and central banks.

“Central bank digital currencies could end up being quite valuable in countries where the infrastructure is unavailable or limited,” Kelly, who is also Visa’s chairman, said during the company’s earnings call. He estimated there’s an addressable market of more than 1.7 billion consumers that could be reached and suggesting there’s space to expand its work with government clients.

Visa reported first-quarter net income of $3 billion, or $1.38 per share, slightly down from $3.1 billion, or $1.39 per share, in last year’s first quarter. That’s better than the Zacks Investment Research expectations of $1.26 per share. Revenue for the quarter was $5.73 billion, down from $5.85 billion in 2020. Analysts’ projections were $5.56 billion.

But a comeback from the pandemic is emerging, as overall payments volume was 116% compared to 2019’s first quarter, Visa reported, using 2019 numbers as a comparison in this case to compare new volume to pre-pandemic figures instead of 2020’s sharp drop. “Recovery will take different shapes in different areas based on vaccine rollouts, but the beginning of the end of the pandemic and recovery are well underway in most markets,” Kelly said.

Unlike in previous quarters, Visa did provide projections, saying third-quarter net revenue growth should be in the high teens, with travel recovery the key metric to watch. Visa contends there is a large amount of pent-up demand that will push travel recovery.

Gold rush

Kelly discussed several ways Visa is engaging the crypto market, which he divided into investment assets — or “digital gold” as he called it — and digital currencies, which he said are more amenable to payments.

Visa is positioned to quickly convert these investments for funds that are usable across the company’s 80 million merchant network.

“It’s the core of what we do, enabling consumers to make a purchase,” Kelly said. Visa is adding partnerships with crypto exchanges such as Coinbase, Crypto.com and Bitpanda, he said, and it has upgraded its infrastructure to allow settlement in stablecoins.

“We are leaning into this in a big way,” Kelly said.

Governments are also digitizing more of their operations, Kelly said, an indirect nod using digital rails to disburse stimulus payments and eventual CBDCs. “Governments are becoming bigger clients, and we’ll see more of that activity, in general, than we had before the pandemic,” the CEO said.

Visa also reported numbers that reinforced Kelly’s belief that the pandemic-induced digital commerce habits are permanent.

Visa reported card-not-present volume excluding travel grew 20% in the first quarter, while growth in the U.S., Canada, Brazil, U.K., Italy and Singapore was 30% higher. Card-present spending, which is up 4%, did not slow growth in CNP payments, Visa said, suggesting the return of card-present payments as the economy recovers is not negatively impacting e-commerce growth.

“The pandemic has not changed our strategy, and has reinforced the belief that habits from the pandemic will last,” Kelly said.

Cash withdrawals via Visa debit cards at ATMs fell 7% in the quarter, while overall debit card usage grew 16%. That 20% gap is double the normal historic gap and consistent globally, which Kelly attributed to the overall decline of cash use in most markets.

These e-commerce numbers exclude travel, though there has been some recovery. Travel from the U.S. to Latin America is at 90% of pre-pandemic travel in March, while travel to the from all markets to the U.S. is still down 70% from March 2019, with Visa again using 2019 numbers as a comparison for some metrics given the sharp decline in 2020. Travel in and out of Europe is down 50% versus 2019. Visa said travel bubbles in Asia have resulted in increased bookings, and the news that vaccinated U.S. residents may soon be able to travel to Europe has boosted bookings.

“Travel will take time to recover. Personal travel will come back, which is good for Visa since the vast majority of our travel business is consumer,” Kelly said, adding Visa also has a strong travel co-brand business.

The e-commerce trend is also notable in cross-border flows, which have flipped during the pandemic, from one-third of cross-border payments coming through e-commerce channels before the pandemic, jumping to two-thirds of cross-border payments pegged to e-commerce shopping currently. Visa attributed that to the growth of e-commerce as well as the pent-up demand that will cause an added boost when travel returns.

“Millions of new e-commerce shoppers are coming in that weren’t there before,” Kelly said. “That’s not going back the other way. The people who are concerned about cash and comfortable shopping online will continue to do so.”