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Ahead of taking the reins at Visa, incoming CEO Ryan McInerney highlights the "enormous opportunity" he sees for growth and expansion in both emerging and developed markets respectively.
Last week, US payments giant Visa announced that CEO and chairman Alfred Kelly Jr. is stepping down to take up a new full-time post as executive chairman of the board.
In his place, McInerney will take over as CEO in February after a ten-year stint as Visa president.
McInerney joins Visa at a time of strong growth for the company, combined with healthy financials.
In fiscal year (FY) 2022, Visa reported net income of $15bn and net revenue of $29bn — an increase of 22 percent over the previous year on both counts.
During the same year, Visa’s credit and debit card programmes processed 241bn transactions, up 12 percent compared with 2021, representing a total purchase spend of $11.6bn.
As previously reported by VIXIO, last year’s annual report revealed the card-giant had largely rebounded to above pre-COVID levels across core financial and transaction metrics.
Given Visa’s strong recent performance, keeping the momentum going is likely to be top of mind for McInerney as he prepares for his new role.
Speaking at the Citi FinTech Conference in New York last Tuesday (November 15), a few days before being named as CEO, McInerney gave an overview of where he sees Visa’s future engines of growth.
“I think there's an enormous opportunity, enormous runway in our consumer payments franchise globally,” said McInerney, noting that two thirds of Visa’s revenue is made up of consumer payments.
“The relative emphasis will be on engagement versus expansion,” he added, “but we see expansion opportunities on all those levers around the world.”
Worldwide growth
McInerney pointed out that Visa currently has more than 4bn cards in circulation worldwide, and although there is significant growth coming from emerging markets, the CEO-in-waiting pointed to strong fundamentals in more established markets.
“Tap to Pay is a great example of an accelerant of transactions and accelerant of payments volume,” said McInerney, referring to contactless card payments.
In the US, more than a quarter of all face-to-face transactions are now contactless, and worldwide more than half of face-to face transactions are now contactless, highlighting the room for growth in the US.
“We know from our data that once you get a customer to start tapping as a way to pay, they make more transactions, they spend more on their Visa card,” said McInerney.
“So maybe the opportunity for consumer payments is enormous. It's enormous in developed markets like the United States where we are all sitting today, it's enormous in Africa too.”
As McInerney pointed out, Africa is home to about 1.4bn people, and about 500m of those are “yet-to-banked”, as he put it, eschewing the term “unbanked”.
In the larger markets such as Nigeria, South Africa and Kenya, Visa had offices there “for decades”, and now wishes to build the same footprint in fast-growing markets such as Ethiopia, a country of 188m, and Democratic Republic of Congo, a country of 92m.
Other Africa success stories for Visa include countries such as Sudan, against whom the US revoked its long-standing sanctions programme in 2017.
“As soon as the US relaxed their sanctions, we opened an office in Sudan,” said McInerney. “There’s about 40m people there, almost all of whom are buying or selling with Visa cards today.
“So it's a great opportunity to develop card acceptance and engagement — it's all upside.”
B2B, cross-border payments
Another focal point for McInerney is business-to-business (B2B) payments, which are closely tied to the firm’s cross-border payments offering.
In 2022, the company reported it had $1.5trn in B2B flows, made up of card-based payments, cross-border payments and accounts receivable and accounts payable payments.
“It's grown significantly over the last several years and we expect it will continue to grow significantly,” said McInerney.
McInerney looks at Visa’s cross-border payments as a tale of two opportunities: the first being corporate travel and small businesses; and the second being “large, dollar money movement”, traditionally handled by SWIFT and correspondent banks.
Visa has also invested significantly in a new network called B2B Connect, a multilateral network that delivers cross-border payments for financial institutions and their corporate clients that launched in 2019.
“We spent a lot of time laying the groundwork for it,” said McInerney. “We spent time with so many clients around the world designing the product, designing the pricing, ensuring that it is a faster, cheaper, more transparent way to send large-ticket cross-border payments, and we feel really good about the progress that we're making, building out that network.”
Finally, Visa has also been building out a relatively large footprint in the disbursements sector through Visa Direct.
“This is kind of big B to small B, if you will,” said McInerney. “If you're a ride-hailing company and you have drivers in India, we've created the ability for you to push those payouts, make it seamless, make it easy for those drivers to accept those payments on their Visa card, in their account, in their wallet, whatever it is.”
The company recently announced that Visa Direct had processed 5.9bn transactions for the year ending September 2022.
According to outgoing CEO Kelly, answering a question at the company's Q4 earnings call in October, Visa Direct also provides an alternative to real-time payments, which he claims improves the customer experience.
Speaking of the security protections, including zero user liability, chargebacks and dispute resolution offered across the international card network, he argued: “All of those capabilities offer an awful lot of peace of mind to a consumer versus a transaction where the money is immediately moved from your bank account across an RTP network to pay somebody, and all of a sudden if there's an issue, and there's nobody to turn to.”
Here Kelly is alluding to concerns in some parts of the world around fraud across instant payments systems.
“All those things are things that our network does that makes Visa Direct a really, really strong alternative to an RTP network.”
Challenges ahead
Despite these positives, McInerney will also have to navigate potentially tough times ahead if the expected economic downturn puts pressure on Visa’s transaction volumes, as both consumers and businesses rein in spending.
There are also some regulatory clouds on the horizon as policymakers around the world challenge card fees, while at the same time promoting competitive alternatives to Visa’s core business.
Already in 2022, new interchange fee caps and other cards-based regulatory interventions have occurred in Australia, Brazil, Chile, Malaysia and New Zealand, to name a few.
In the US, Senator Richard Durbin, the architect of the post-financial crash Durbin amendment, which placed interchange caps on debit cards alongside other competitive requirements on issuers, proposed a new set of rules in August.
This time the senator is targeting credit cards, proposing that merchants be offered a choice to route transactions to an alternative network to Visa or Mastercard.
In the UK, the Payments Systems Regulator (PSR), as well as launching a review of cross-border interchange fees between the UK and the EU, is also currently doing a separate review of scheme and processing fees, an area that has typically not been in the sight of regulators, and potentially challenging a direct source of income for Visa.
Nevertheless, the company has weathered previous challenges and will unlikely be fazed by these latest obstacles to further growth.
In the announcement confirming McInerney's appointment, the CEO-in-waiting said: “I am looking forward to continuing to help Visa deliver innovative solutions that help individuals, businesses, and economies thrive.”
