Visa wants to take part in the rampant development of stablecoins and central bank digital currencies, and the card brand spent a chunk of its earnings call making its pitch.
The discussion was, in part, a way to reassert Visa’s relevance to the tech sector after it scuttled its plan to purchase the data aggregator Plaid. In the crypto community, there’s a growing interest in stablecoins, which link their value to a government-issued currency such as the U.S. dollar as a way to avoid the volatility associated with bitcoin and other cryptocurrencies.
“We can add a differentiated value to the crypto ecosystem,” said Alfred Kelly, Visa’s CEO. “We are uniquely positioned to make stablecoins more safe.”
For the quarter that ended Dec. 31, Visa reported revenue of $5.7 billion, down 5.8% from the prior year, and earnings per share of $1.42. EPS beat market expectations by 14 cents and revenue beat expectations by $180 million, according to Zacks Investment Research. Mastercard Thursday also reported a decline but beat analysts’ estimates.
Kelly did not mention Diem, the Facebook-affiliated stablecion project, nor did he discuss Visa’s patent application for blockchain technology that could support connections between banks and governments to move digital currencies.
Visa is working with digital wallets and exchanges to support credentials and conversions to traditional currency, Kelly said, noting Visa’s exchange partners for debit include Coinbase, Crypto.com and Bitpanda.
“The stablecoins that are backed by traditional currency are like any other currency,” Kelly said.
Under investor questioning, Kelly said the scuttling of the $5.3 billion Plaid acquisition would not harm Visa’s ability to take advantage of the trend toward open banking, or the transfer of data between banks and fintechs to support digital payments and other financial services. Visa also faces growing competition from fintechs that offer buy now/pay later installments as alternatives to credit cards.
“Plaid was going to get us into the data extraction business, which would have added to our ‘network of networks’ strategy,” Kelly said of Visa’s larger plan to offer value-added services built on top of payment processing.
The Plaid deal fell through under Department of Justice scrutiny into its competitive impact. During Thursday’s call, Kelly said Visa could still partner with Plaid and other firms to take advantage of open banking.
Kelly also said the growing buy now/pay later market was an opportunity for Visa and not a threat to credit cards.
“We’re in early days in most markets and there are a number of models,” Kelly said.
Visa has invested in point of sale credit firms, such as ChargeAfter; and both Visa and Mastercard have made inroads into the BNPL market.
“The installments break into three or four or five payments, which is good for us since it gives us more access to earn fees,” Kelly said. He did not address the regulatory pressure that is building on BNPL lenders out of concern the product encourages debt.
The move to digital payments has helped Visa and other payment companies weather the economic downturn that accompanied the pandemic.
In recent earnings calls, Kelly said the shift to e-commerce and contactless payments are likely permanent, though it’s too early to determine if e-commerce gains can offset travel losses. The latest coronavirus wave that started in the fall created more uncertainty and pressure on recovery.
Visa’s recent moves to boost its global digital payments strategy include expanding its Visa Direct partnership with MoneyGram in Europe, and partnerships to expand cross-border transactions in Latin America.
In the U.S., domestic payment volumes are recovering, but cross-border flows remain weak and categories such as travel and entertainment have kept payment levels depressed.
While there are still headwinds due to virus impacts, future quarters will not be compared to “pre-pandemic” quarters, so year-over-year comparisons won’t be as stark, Visa reported. Visa did not issue a fiscal 2021 outlook due to continued uncertainty, but noted it would increase investments in new initiatives in anticipation of a stronger economy in the second half of 2021.
“Hopefully vaccine rollouts will end lockdowns and capacity restrictions will be loosened,” Kelly said.