Visa sees sharp benefits from India's cash crisis

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India's sudden shake-up of its currency system last fall was an early holiday for digital payment companies, and Visa was no exception.

With little warning, India replaced or discontinued nearly 80% of its currency, a move that lead to long lines at ATMs and complaints from confused consumers. The government said the move was designed to reduce criminal activity by introducing more transparency into transactions.

One immediate impact was a dramatic spike in non-cash payments.

"The new government is incenting merchants and consumers to adopt digital payments," Alfred F. Kelly Jr., Visa's CEO, said during Thursday afternoon's earnings conference call.

Visa reported 75% growth in payment volume in the last quarter in India, though Kelly did not mention a dollar amount.

"This is a build opportunity that the government has put out in front of us," Kelly said, adding that Visa would invest heavily in the market, seeing the bump that followed the cash swap out as the catalyst for a long-term opportunity more than a short-term revenue boost. "There's only a fractional amount of the merchant community that is enabled to accept digital or electronic payments."

In addition to Visa's growth, other companies saw an immediate benefit of India's cash recall. The Ola Money mobile app had a 1,500% growth in downloads in about eight hours after the government's announcement. And Paytm reported user increased app use by nearly 600% in the first couple of days.

But there's some concern over how sustainable the digital payments trend is, since more than 90% of Indian payments are still cash-based.

Visa is pushing hard to win more converts to noncash payments, Kelly said. The government has engaged in marketing campaigns to move people to digital payments, and at the government's request, Visa waived processing fees through the end of the year.

"We are working with key stakeholders to maintain our momentum in India," Kelly said. "We're working with issuers to raise awareness and are working to rapidly expand acceptance in India for long-term ecosystem growth."

Visa's news in China was less bullish. Visa wants to establish a market, but is still waiting for guidance from the government. China has expressed a willingness to open to foreign financial services companies, though it has been slow in providing details as to what companies will need to do to comply with local regulations, creating challenges for Visa and Mastercard's path to establishing a local market.

"Visa remains committed to China and want to deepen our partnerships there," Kelly said, adding that the company hoped to apply for a license soon. "We will move quickly once we have information on timelines."

During the fiscal first quarter, which ended Dec. 31, Visa reported earnings per share of 86 cents on $4.5 billion in revenue, versus 69 cents and $3.56 billion a year earlier. The recent quarterly results were higher than Thomson Reuters' analyst expectations of earnings per share of 78 cents and $4.29 billion in revenue.

Kelly, who has completed in his first quarter as Visa's CEO, also reported Visa Checkout is now available with 23 countries, 1,500 issuers, 300,000 merchants and 18 million consumer accounts. Kelly also reported Visa's acquisition of Cardinal Commerce, an e-commerce authentication company, closed Feb. 1, a move that should help Visa accelerate its tokenization strategy as a means to protect mobile payments and other card-not-present transactions.

"E-commerce enabled by mobile and other form factors is a significant opportunity, as payments move from physical to digital," Kelly said.

During investor questioning, Kelly would not comment on the impact of the Trump administration. Mastercard CEO Ajay Banga weighed in on Trump twice this week, once to internally address Trump's travel ban and again during Mastercard's earnings call to address potential deregulation.

"It's too early to tell; it's just two weeks into his presidency," Kelly said.

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Cash Digital payments Compliance Visa U.S. India China