Visa, Inc. (NYSE:V) Q1 2020 Earnings Conference Call January 30, 2020 5:00 PM ET
Company Participants
Mike Milotich – Senior Vice President-Investor Relations
Al Kelly – Chairman and Chief Executive Officer
Vasant Prabhu – Vice Chairman and Chief Financial Officer
Conference Call Participants
Jason Kupferberg – Bank of America
Dan Dolev – Macquarie
Tien-Tsin Huang – JPMorgan
Darrin Peller – Wolfe Research
Bryan Keane – Deutsche Bank
Trevor Williams – Jefferies
Harshita Rawat – Bernstein
Lisa Ellis – MoffettNathanson
David Togut – Evercore ISI
Sanjay Sakhrani – KBW
James Faucette – Morgan Stanley
Dan Perlin – RBC Capital Markets
Dave Koning – Baird
Operator
Welcome to Visa's Fiscal First Quarter 2020 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. Mike Milotich, Senior Vice President of Investor Relations. Mr. Milotich, you may now begin.
Mike Milotich
Thank you, Jordan. Good afternoon, everyone, and welcome to Visa's fiscal first quarter 2020 earnings call. Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer; and Vasant Prabhu, Visa's Vice Chairman and Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at www.investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website.
Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website. For historical non-GAAP financial information disclosed in this call, the related GAAP measures and reconciliation are available in today's earnings release.
And with that, let me turn the call over to Al.
Al Kelly
Mike, thank you; and good afternoon everyone and thank you for joining us today. 2020 is off to a strong start with Visa’s first quarter performance. It’s a reflection of our focus on clients and commitment to moving money globally, seamlessly and safely. In our time today, let me first touch on our results and then discuss how we’re going to grow our core C2B or consumer payments business and capturing new payment flows, which is all part of our network-to-network strategies.
To start, our first quarter results, we had a terrific quarter and the business is performing well. We reported net revenue growth of 10%. But if you adjust for exchange rates and very low currency volatility, our net revenue growth was approximately 13%. Our EPS growth was 12% or 14% on a constant-dollar basis, excluding the impact of acquisitions made after Q1 last year.
Key business drivers were largely consistent with the fourth quarter as we expected. For the first time in our history, total network volume this quarter was over $3 trillion. Payment volume grew at 8% globally, 10% excluding China and the UK. Cross-border volume rose 9% on a constant-dollar basis and we processed nearly 38 billion total transactions on our network, up 11%.
Let me touch briefly on holiday spending, starting with the United States, the growth was similar to the 2018 and 2017 holiday seasons, which were both strong years. Credit growth was slightly better than last year and debit growth slowed slightly due to lapping tax reform, which had a positive impact on U.S. debit growth throughout all of last year, including the holiday season.
E-commerce grew three to four times faster than non-e-commerce. E-commerce also drove more than one-third of all consumer spend, up two percentage points versus last year. Retail spend growth was stronger than last year, fueled mostly by e-commerce. However, that was offset by slower growth in travel and restaurant spending. To give you a brief sense of the holiday season in the other major markets, Brazil and Canada saw slightly stronger growth than last year. The UK growth was similar to last year's level, and growth in Australia slowed slightly.
Now let's look at the core business overall for the first quarter. We are growing our core payments business in three ways; through large clients and markets; number two, making progress to capture the opportunity in emerging and other markets through new partnerships, including wallets and fintech; and three, all while helping the ecosystem remove friction.
We continue to have significant renewals and wins amongst some of our largest financial institutions. These have renewed our issuing agreement with Capital One effective January 1 of this year. We're very pleased to continue our longstanding relationship with Capital One.
We recently renewed our agreement with DKB, our largest issuing bank in Germany, and we're looking forward to developing new service as a product within this exclusive innovation partnership. In the Caribbean, we’ve renewed a multiyear contract with Royal Bank of Canada for credit and debit. This agreement also includes some new debit wins covering 17 Caribbean countries and territories. In Latin America, we're pleased to have won the credit and debit business for Santander in Brazil, Argentina, and Uruguay.
This leadership position with financial institutions also extends to the merchants, as we are a leader in co-brand with 13 of the top 20 portfolios globally. This quarter we could take it to solidify our leadership position. In the United States, we were selected for the new Venmo co-brand credit card reflection of our strong partnership with PayPal. The opportunity for this product is quite significant as Venmo has over 52 million users currently.
We're excited to continue growing our longstanding co-brand relationships with Caesars Rewards and Harley Davidson. Sony has relaunched both of their co-branded credit cards connected with the Sony Rewards program. Together, Sony and Visa are partnering in a number of ways to grow these programs and bring compelling offers to their cardholders. We already had a strong relationship with Costco as their co-brand provider in United States, Taiwan, South Korea and Mexico, and just this corner secured the China co-brand.
In Europe, Visa extended our co-brand partnerships with Norwegian Air Shuttle and S-Group, respectively. In CEMEA, we renew the Emirates NBD’s credit business and half of that portfolio is represented by the Emirates Skywards co-brand program exclusively with Visa. And the rest of the portfolio is bank branded credit.
Our wins are not limited to just large issuers and merchants as we continue to make progress to capture the opportunity in emerging and other markets through wallets and investments. In Africa, we have recently taken several steps to help accelerate the shift to digital payments. On the credential side, mobile money wallets are already prevalent across Africa. But without a virtual or physical debt or credential associated with them, many international online services are unavailable to users. To help solve this problem, we announced a collaboration with MFS Africa, which is Africa's largest digital payments hub connecting through one API to more than 180 million mobile wallets on the continent to distribute Visa payment credentials across the continent.
In an effort to build acceptance, we recently announced an investment and partnership with Flutterwave, a Pan African digital payments platform that enables multipayment acceptance and processing. Together, Flutterwave will further scale its consumer payment service called Barter and its merchant acquiring service called Rave through Visa products such as Visa Direct, Visa QR and Virtual cards.
In addition, Visa established its strategic partnership and will acquire a minority stake – equity stake in Interswitch, a company focused on the digitization of payments that processes more than 80% of domestic transactions in Nigeria, and sales payment processing across 23 other countries in Africa, and operates the largest domestic debit card scheme on the continent with 23 million cardholders.
Our partnership will help accelerate Visa deployment of payment experiences, leveraging interswitches, processing and integration capabilities and scale their bill pay services across Africa. As we grow our business in emerging markets and with new players across the globe, we’re ever focused on improving the point-of-sale experience and reduce the friction for the entire ecosystem. In the card-present environment, we continue to see meaningful momentum in tap to pay what we consider to be the most friction free way to pay in person.
We have reached a point, where one in every three card-present transactions that runs over our network is tapped versus one in four a year ago this quarter. This past year, we doubled the number of countries, whose face-to-face transactions are at least two thirds contactless. Transit continues to be a key user case and an important way to habituate tapping behavior. In New York city on the MTA, Visa crossed two million taps in November, from the beginning of the pilot and three million in January. The MTA recently announced the tap to pay expansion to their entire system by the end of 2020. And we are currently pacing a 350,000 Visa taps a week on the MTA and nearly, one in every 10 transactions in the New York Metro area is a tap to pay on a Visa card.
We also launched Africa’s first contactless transit system in Johannesburg this quarter, in addition to launches in Ho Chi Minh city as well as Taiwan, Sweden, and Ukraine. In the e-commerce environment, click-to-pay or what we once called Secure Remote Commerce, speaks s to streamline the digital payment experience across networks offering greater security and improved sales. You may recall, we launched with a select number of merchants in October and by the end of December more than 40 merchants had adopted the new click-to-pay solution.
Now that the holiday season is over, we recently completed the migration of 5,500 U.S. merchants to click-to-pay. We expect to complete the migration of the remainder of Visa Checkout merchants in the United States over the coming months. Additionally, all 50 million consumers, who are already enrolled with Visa Checkout, were automatically converted to click-to-pay. Globally, we continue to make progress on securing the ecosystem with tokens. Introduced in 2014, tokens have expanded into 107 countries equating to six billion tokenized transactions in 2019. We now have over 750 million tokens globally.
Over the past 18 months, Visa Sign, it is now live with the majority of large e-commerce platform for card-on-file tokenizations, including Adyen, Raintree, CyberSource, PayPal, Stripe, as well as some big e-commerce companies including Amazon and Netflix, amounting to hundreds of millions of new tokens, which is accelerating the pace of e-commerce transactions now processed over the Visa token service. Collectively, we have secured merchant and partner commitments for tokenization in the e-comm space that will add up to approximately $1 trillion in Visa payments volume.
Putting it together, our core business remains strong as we continue to win with traditional players, new players, and speak to remove friction. Outside of our traditional C2B business, we’re making progress and capturing new payment flows. in the card-based B2B space, we had several wins in the first quarter. In Singapore, we’ve won the government procurement card for Oversea-Chinese Banking Corporation or OCBC with the Singapore government mandating the digitize payments by 2023; OCBC is targeted to capture a significant public sector procurement volume. Within the CEMEA region, Visa signed a partnership with NEC payments, a digital banking and payments processing platform to expand NEC’s regional and international issuing business focused on virtual card for B2B payments such as travel and insurance.
In Hong Kong, we partnered with Neat, a fintech offering digital business account services to be an exclusive partner with Visa’s issue virtual commercial cards. Visa Direct serves P2P, B2C and even B2small business with over 700 million transactions in the first quarter of 2020. This quarter, we wanted to highlight significant progress in the B2B cross-border space.
MoneyGram announced it is now live enabling international transfers that rely on Visa Direct, the new service, which has been available within the United States in September; it’s starting with transfers to Spain and the Philippines. TransferWise, the global technology company for international payments will also begin offering its customers the ability to send, receive funds in real-time to Visa Direct. The integrated capability currently available in six countries including Spain and Poland will soon be available across more countries in Europe.
Our continued progress with Visa Direct speaks to our network of network strategy, where consumers did business as in governments to move money to anyone anywhere, each new network endpoints be it a car, the consumer or a business account or a wallet, compounds the value of the capabilities we offer to partners and improves the customer experience through a single Visa connections.
As I talk about network, it’s hard not to mention Plaid, although I’m not going to cover into too much detail until the transaction closes. We see Plaid is having the potential to deliver real value to Visa in multiple ways. We have received a number of questions on their revenue model. So, I thought I would cover it quickly. Similar to us, we have a usage base revenue model, pricing is structured on a pay per API call basis, and varies by product depending on the type of financial data consumed by the customers at the fintech, which speaks to the power of their network. We are truly excited about the acquisition.
To close, we’re off to a strong start in the first quarter with much to be excited about as we look forward. We are deepening partnerships with traditional players in markets and expanding assets with new players. We’re removing friction in the ecosystem and we’re making significant progress to capture new flow. This is all part of our network of network strategy as we continue to focus on clients and moving money globally, seamlessly and safely.
I want to take a quick moment to mention our Investor Day on February 11 here in San Francisco, which will simultaneously be webcast. You will hear from for knowledgeable and deep bench of leaders will discuss our view on the evolution of the ecosystem and how we intend to deliver Visa’s future growth to our customer – consumer payments business, new flows and value-added services. The formal presentations should run from about 8:00 AM to 2:30 PM Pacific Time and we look forward to your participation.
With that, let me turn it over to Vasant.
Vasant Prabhu
Thank you, Al and good afternoon everyone. We had a strong start to fiscal 2020 with results coming in consistent with our expectations, excluding acquisitions and investment gains, constant-dollar net revenue and EPS growth about 11% and 14% respectively. Exchange rates reduced revenue growth by over one point and EPS growth by approximately one and a half points. The four acquisitions completed in the last six months, increased reported revenue growth by approximately half a point and expense growth by approximately three points.
starting in fiscal 2020, we're providing adjustments to our GAAP numbers each quarter to help investors’ better track ongoing business performance. Non-GAAP results will exclude three items: 1) the impact of equity investment gains and losses 2) amortization of acquired intangible assets or acquisitions completed in fiscal year 2019 and forward, and 3) certain non-recurring acquisition-related costs. Prior non-GAAP results were also adjusted to reflect this change.
this quarter, the impact of non-GAAP adjustments is de minimis. In addition, you will find a helpful schedule on the first slide of our earnings presentation. In addition to GAAP and non-GAAP results, we provide the growth rate impacts of exchange rates as well as the inorganic impact of acquisitions. in other words, the revenue expense and EPS impact that acquisitions had on our reported numbers this year, which were not in our reported numbers in the first quarter last year.
A few highlights from the quarter. Key business driver growth rates, payments, volume, process transactions and cross-border volume that's stable and consistent with prior quarters. Net revenue grew 10%. However, the underlying growth trend in revenues is masked by two significant drags related to currencies. First, a stronger dollar reduced nominal net revenue growth rates by over one point. second, currency volatilities were at the lowest level we have seen in over five years. as maybe expected, the sharp decline in currency volatility had a significant impact on international fee revenue.
If you adjust for the drag from unusually low currency volatility and the drag from the strong dollar, underlying net revenue growth is robust at approximately 13%. Constant-dollar payments volume growth of 8%, slowed by one point compared to last quarter. This trend – this change in trend is driven by differences in processing days when compared to the first and fourth quarters of last year. The processing day impact was over one point in the U.S. and several points in Canada.
excluding the processing the impact, Q1 payments volume growth was similar to last quarter and second quarter service revenues associated with these volumes will be in line with our expectation. constant-dollar cross-border growth rates, excluding volumes within Europe, were also stable at 9%. our reported constant-dollar cross-border growth rates accelerated 2.9% as we are now lapping the pan-European e-commerce platform, which re-oriented acquiring across countries last year, converting transactions from cross-border to domestic.
As we have discussed in the past, this shift at minimal revenue impact to Visa, has cross-border transactions within Europe, have revenue yields similar to domestic yields. We repurchased 13 million shares of class A common stock at an average price of $179.71 with $2.3 billion in the quarter. Our board has authorized a new $9.5 billion share repurchase program. with this additional authorization and the $1.7 billion of remaining authorized funds as of December 31, 2019, we have $11.2 billion available for share repurchases. including our quarterly dividend of $0.30 per share, we returned approximately $3 million of capital to shareholders in the quarter.
Turning now to our key business drivers and financial performance. payments volume growth in constant dollars was 8%, credit was up 6%, debit was up 11%, growth excluding China and the UK was 10%. as a reminder, Chinese domestic volumes are impacted by dual-branded card conversion, which have minimal revenue impact. U.S. payments volume growth was up 8% with credit growing 7% and debit 9%.
Excluding the processing day impact I described earlier, growth accelerated almost one point due to a partial lapping of the Cabela’s conversion and multi-higher fuel prices. Underlying consumer spending growth was largely consistent with the last quarter.
International payments volume growth in constant dollars was 8% and 12% excluding China and the UK. Growth in CEMEA remains robust 22% with strong growth across Russia and the middle East. Latin America also remains strong at 17%, given by some wins and strong performance of existing clients.
Asia Pacific excluding China grew 8% decelerating over two points primarily due to slow growth in Japan, Australia and Hong Kong. Europe excluding the UK grew 12%. UK growth remains weak and slowed one point after improving in each of the last two quarters. process transactions continue to grow at 11%. constant-dollar cross-border growth of 9% was up two points from the last quarter that’s stable that 9% excluding volumes within Europe. Both travel and e-commerce growth were in line with the last quarter excluding volumes within Europe.
Outbound commerce accelerated from Russia, Africa and across Europe, which was offset by weaker growth out of the U.S. and Asia. Inbound commerce accelerated a bit into the U.S., but decelerated a little into Europe, which is consistent with the weakening dollar, compared to the pound in Europe. Growth into China and Hong Kong remains weak.
Net revenues grew 10% or 11% in constant dollars excluding acquisition. The impact of our acquisitions on revenue growth was approximately half a point. Service revenue growth is consistent with the last quarter at 9%. data processing revenue growth was also in line with the last quarter at 16%. international transaction revenue grew 9%, decreasing two points from the fourth quarter despite its smaller exchange rate drag due to the unusually low currency volatility. other revenues grew 22% slowing 13 points from the fourth quarter as we lap ASC 606 impacts from last year, partially offset by faster growth in our value-added services. client incentives were in line with our expectations at 22.4% of gross revenue, up 30 [ph] basis points from last quarter.
As we told you in October, the expected client incentives to step up from our fiscal 2019 exit percentage, the lower end of our full-year outlook range in the first quarter due to the level of deal activity this quarter and last year.
GAAP operating expenses were up 14%. excluding the amortization of acquired intangible assets and nonrecurring acquisition-related costs from the four acquisitions that closed in the last six months. Non-GAAP expense growth was 13%.
Personnel expense growth is primarily driven by increases in stuff to drive our growth initiatives, which we’ve stepped up in the second half of last year. Acquisitions and some nonrecurring expenses also contributed to personnel expense growth.
Marketing expenses decreased 1% due to the timing of some spending as well as the reporting change that shifted some expenses to the general and administrative line. The impact of acquisitions added two points from non-GAAP expense growth. Exchange rates reduced reported expense growth by approximately one point.
Non-operating income/expenses include equity investment gains of $13 million, which we are now excluding in our non-GAAP results. Investment income also includes a small non-recurring benefit, which is exactly offset in personnel expenses with no impact on earnings.
Excluding these non-recurring items, investment income is lower this year due to falling interest rates and lower cash balances. Our tax rate of 17.7% was lower due to some items that are unique to our first quarter each year. This was anticipated and reflected in our outlook for tax rate this year.
Moving now to our outlook for the second quarter and the full year. First, let me share business driver growth for the first four weeks of the quarter. Through January 28th U.S. payments volume growth was 10%, with U.S. credit growing 9% and debit 12%. Processed transactions grew 13%. Cross-border volume on a constant-dollar basis grew 8% or 7% excluding cross-border volume within Europe. Cross-border volumes in the last two weeks of January are negatively impacted by the shifts in the Chinese new year with potentially some initial effects of the coronavirus outbreak.
As we look ahead to the second quarter of fiscal year 2020, we’re assuming stable growth trends on key business drivers, payments volumes, processed transactions, and cross-border volume. The exchange rate drag on net revenue in the second quarter could be approximately 1 point, 50 basis points better than our prior outlook and consistent with the first quarter due to some weakness in the dollar since September.
More than offsetting the small benefit could be the unexpected drag from currency volatility. The unusually low currency volatility so far this fiscal year continues to persist into January. As maybe expected – as expected client incentives as a percent of gross revenue will climb to the upper half of our outlook range of 22.5% to 23.5%. Count by the extra day in a leap year, second quarter net revenue growth rates are expected to be in the low-double digit and modestly better than the first quarter.
Our second quarter revenue outlook does not reflect the potential effects of the recent coronavirus outbreak in China. It is too early to assess this impact. Second quarter expense growth is also expected to be modestly higher than the first quarter. As we had indicated in October, expenses will grow at the highest rate for the year in the second quarter as marketing expenses ramp up relative to a low level of spend last year. Also as the dollar has weakened the exchange rate benefit on reported expense growth will be about 1 point, 50 basis points lower than we had anticipated in October.
Our non-operating income/expense in the first quarter had a run rate of around $65 million, when you exclude the $13 million gain from equity investments and the small non-recurring benefit I mentioned earlier. The run rate of non-operating expenses will be somewhat higher in the second quarter due to lower interest income as a result of lower cash balances and lower interest rates. Our tax rate outlook for the second quarter remains unchanged at 19% to 19.5%.
Overall, we’re maintaining our outlook for fiscal year 2020. I will mention a few adjustments and trends that they're monitoring. On the net revenue front, we are still expecting low-double digit net revenue growth in constant dollars. Based on current exchange rate and future expectations, the currency translation drag could be at the lower end of our previous 1 percentage point to 1.5 percentage point range at approximately 1 point. The four acquisitions we’ve completed in the past six months are still expected to add around 0.5 point of net revenue growth.
As we highlighted in October, a significant factor impacting fiscal year 2020 net revenue growth is the unusually high volume of renewal activity. In fiscal year 2019 we renewed 30% of our payment volume, with 15% renewed in the fourth quarter alone. And we indicated fiscal year 2020 renewal activity could be front loaded, with another 15% to 20% of payment volume renewed in the first half. Since then, it has become apparent the renewal activity in fiscal year 20 could be even higher, with three to four large unplanned renewals now on a discussion. We could bring this year level of renewal activity almost on par with last year.
We are pleased about this since in most of these situations, we will most likely not only renew our existing business but could also gain a larger share of these clients over the term of our new contracts. One major client renewal is already complete, and the other could get done in the next two or three months. As such, we now expect client incentives as a percent of gross revenues to be at the high end of our outlook range of 22.5% to 23.5% in FY2020.
Excluding acquisitions and last year’s MDL-related special item, our outlook assumed four expense growth in the mid-to-high single-digit range in constant dollars or 7% to 8%. This climbs to low double-digit growth when you add in the four acquisitions we have closed on in the past six months, which contribute three points to four points to expense growth. Based on current exchange rates and future expectation, nominal expense growth is likely to benefit by one point.
As such, our expense growth for the year is expected to be in the double-digits, with 50 basis points – which is about 50 basis points higher than we expected in October. As I indicated earlier, non-operating expense at a run rate of approximately $55 million in the first quarter. This expense will move modestly higher in each successive quarter this year due to declining interest income from lower rates.
Our full year outlook for tax rates remains unchanged at 19% to 19.5%. Q1 tax rates were lower than the full year outlook due to some items that are unique to our first quarter each year and were largely anticipated in our full year outlook. Excluding the four acquisitions, our outlook for adjusted fiscal year 2020 EPS, constant-dollar growth remains in the mid-teens, built off fiscal year 2019 EPS of $5.40. Four acquisitions are expected to dilute EPS by $0.05 or $0.06 a one point drag on EPS growth.
Based on current exchange rates and future expectations, exchange rates could reduce EPS growth at approximately one point. Including the acquisition and exchange rate impacts of 2 points, our outlook for adjusted fiscal year 2020 nominal EPS growth would be in the 12% to 14% range. We still expect for the fourth quarter to be the highest EPS growth quarter. Our fiscal year 2020 outlook does not include any impact from the planned acquisition. We will update our outlook when we have more clarity on the timing for closing on the transaction. When we announced the acquisition, we gave you some preliminary estimates of revenue and earnings of revenue and earnings implications for fiscal year 2020 and 2021.
With that, I'll turn this back to Mike.
Mike Milotich
We're now ready to take questions, Jordan.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Jason Kupferberg from Bank of America. Your line is now open.
Jason Kupferberg
Hey, good afternoon, guys. So just wanted to start on the incentive side, I mean the guidance change here is really only half a point, I mean if people were previously modeling the middle of the range. I'm just wondering if you expect to make up for that half a point through better gross revenue or does it feel more like you just may land net revenue slightly lower within that overall unchanged low-double digit guidance range, especially since the currency volatility has fallen off as you guys pointed out?
Al Kelly
Yes, a couple of things, Jason. Yes, we'll see how incentives play out for the year, but the way it looks right now, the renewal activity will be higher and so we are signaling that it could be at the upper end of the range. And as you said, if people are in the middle of the range, that's up a point higher. On the other hand, we are signaling that if exchange rates stay roughly in the range they're in on where people are expecting, that is about at the lower end of the range too. So you pick up some of it there.
In terms of currency volatility, we were able to absorb most of it in the first quarter and still get very close to as you saw what our expectations were. We're factoring that into our second quarter outlook. What is going to be for the second half? I think we'll wait and see. It's not something you can predict further out and the time will tell.
Mike Milotich
Next question.
Operator
Our next question comes from Dan Dolev from Macquarie. Your line is now open.
Dan Dolev
Hey guys, thanks for taking my question. So a quick question on cross-border, it looks like a nice uptick. Can you maybe talk a little bit about that? Thank you.
Al Kelly
Well, I guess, remember last year, Dan, you had a number of things going on, especially at the back end of the quarter with a government shutdown, Brexit, U.S.-China trade talks, et cetera. So we were expecting some uptick off of some of those factors that had a negative impact on cross-border at the time. And so we're back up in what I think we would expect to be a fairly normal range at this point.
Mike Milotich
Next question, please.
Operator
Our next question comes from Tien-Tsin Huang from JPMorgan. Your line is now open.
Tien-Tsin Huang
Thanks so much. Everything was really consistent here, but just looking at the regional volumes, just a couple of questions or clarifications. On the Asia front, it looks like it’s slowed to the 4% zone. Curious what was the outlook here based on what you see? And then with Europe, I'm pretty stable, soften and tends to go low end of the 8% to 9% range. But I know you guys have made a lot of investments there. What are your expectations for European? Can you sort of break out of this zone based on some of the investments you've made? What do you see there? Thank you.
Al Kelly
Yes, I might start and I'm sure we'll add. In Asia, we highlighted three areas. Japan was really more of a quarter-over-quarter comparison. There were some changes in consumption taxes in Japan that seemed to push some spending into the period ahead of the tax going up. So it was pushed more into the last quarter. And so it's – we don't think that's an ongoing issue. The other one was Australia. Australia, you had some of the wildfire impact. And that seems to be one of the bigger factors there. And last was Hong Kong, and you saw – you know what some of those are. We have seen impacts in Hong Kong from some of the protests going on.
So that was pretty much it. Across the rest of Asia, the trends are very good. In Europe – UK is a big chunk of our business and the UK has been very weak and actually slowed through the elections and had a very relatively weak holiday season and slowed by a point in the quarter. If you take the UK out, growth was a pretty healthy 12% in the rest of Europe.
The only thing – I'd add two points, Tien-Tsin, one is the consumption tax that Vasant referred to. Now the government has decided to re-date some of that consumption tax when people do contactless transactions in Japan as part of the government's push on the cashless going into the 2020 Olympics in Tokyo. So that actually going to turn out to hopefully be a good thing, not only stimulate spending, but to stimulate tap-to-pay spending.
The other point on Europe; as Vasant rightly pointed out, the UK has been a bit of a drag for us, but we've been extremely focused on the continent and had some – we've had some good wins in fintechs and some good renewals. And those things are in the pipeline and I feel pretty good about where Europe's going to head over the next couple of years in terms of growth.
Mike Milotich
Next question.
Operator
Our next question comes from Darrin Peller from Wolfe Research. Your line is now open.
Darrin Peller
Hey, thanks, guys. Just a couple of quick ones. One is on the, look, the improvement in volume we're seeing in January seems to really underscore the comments you made around like nuances in Q – calendar Q4, like the processing day. Just if you can comment on what you're seeing in terms of the consumer given, are these improvements into January just timing or do you actually see a healthier type of spending trend?
Al, just one quick follow-up also was around the rebates incentives given, so many are being done now. Can you just comment on the types of returns you're expecting to see for those? Are these longer contracts than they used to be? Are they coming with more value added offerings? Something along those lines would be great.
Al Kelly
Well, I think Darrin other than in the UK consumer has held up pretty darn well. And our volume in this last quarter when you factor in the processing day change, which is kind of a bit of an anomaly, but if you look in September, the last day of September in 2018 was a Sunday and a lot of merchants that acquires whole volume on a Sunday. So what ended up happening, a bunch of one day worth of – a lot of volume for one day got pushed into the first quarter of 2019. We did not have that same phenomena this past quarter because the last day of September this year was a Monday. So we just simply had a dynamic that it was – was hard to grow over. And so when you actually adjust for that, our growth quarter-over-quarter was pretty similar.
So in general, I think the consumer has held up quite well and there's no reason to see it go down other than, again, depending upon where this coronavirus ends up going and who knows at this point. Just to be clear, when you have to have rebates and incentives, when I was referring to the rebate, that was a rebate being given by the government in Japan. I don't know whether that's what you’re referring to. But in general, we are trying to obviously strike the right balance in terms of incentives that we do in deals, try to make many of them as many of those incentive dollars growth-oriented as possible so that as partners’ volume picks up, their incentives picks up, but we're also getting the associated volume with them.
And as – it’s probably no guarantee, we obviously push for contracts that are as long as possible. There's – to some degree, most of them kind of fall in a five- to seven-year cycle. Every once in awhile there's some 10-year deals. And then there's issuers that like to do deals every couple of years and those would tend to be more of the issuers that have dual issuers. So, it’s always a bit of a balancing act to try to get to the right level, but I think we try to structure these incentives in smart ways, where they’re growth oriented, they’re focused on consumption of different numbers of Visa products, and try to build relationships with issuers that go well beyond just an issuing relationship to encompass Visa Direct to encompass tokenization, et cetera.
Mike Milotich
Next question?
Operator
Our next question comes from Bryan Keane from Deutsche Bank. Your line is now open.
Bryan Keane
Hi guys. I wanted to ask about Capital One, I know Mastercard also announced a renewal with Capital One. So maybe, you could help us sort out of that contract breaks and if this is a net positive for both networks. And then just secondly, Vasant, on expense growth, I think your comments last quarter was expected to be similar to the fourth quarter, which I think was around 11.4% that came in a little bit higher. Was there any pull forward in expenses, because I think operating margins at the street we’re expecting were a little higher than they came in. Thanks so much.
Al Kelly
Bryan, let me just try to point on Capital One and then I’ll let Vasant comment on acquisition. Look, Capital One has been a classic dual issuer and it – always, it depends on what portfolios each network happens to have and how they perform at any given point in time. But there were big terrific banks with a lot of innovative people on your team. We love working with them. and so it’s a good thing for us and I’m sure that next, I would say it’s a good thing for them as well.
Vasant Prabhu
Yes. Expense growth was a couple of points higher than we might have expected. Some of it is exchange rate. So, as you saw, the exchange rates were somewhat better than – the exchange rate impact was somewhat better than we expected on revenues, which means on the expense side were somewhat worse, I think that was about a point. And as we – as I indicated in my comments, there were a few other non-recurring types of things that added another point. So, in general, they want any real surprises, they will pull forward of investments that it was just a couple of these kinds of items.
Mike Milotich
Next question please?
Operator
Our next question comes from Trevor Williams from Jefferies. Your line is now open.
Trevor Williams
Hi, good afternoon, and appreciate you taking the question. This is a little bit higher level, but I’m curious internationally with a couple of government-backed systems like Mir in Russia and Troy in Turkey that mandate domestic processing. I guess first just, how you see your role in the economics you can earn in both of those markets over the longer term. And then second, more broadly, if you’re comparing today’s backdrop to, I don’t know, five or 10 years ago, just what kind of threat you guys think nationalist’s payments agendas could pose to the international business going forward? Thanks.
Al Kelly
Trevor, some of these domestic – our processing platforms with domestic teams are not terribly new. Our objective is to work closely with both regulators to make sure it’s an even playing field and then work closely with our clients to make sure that we get a fair share of business. Many times our processing network of VisaNet actually just playing a simple has a lot more richness to its various offerings. And people we’ve had cases, where banks see that and preferred to process with us, because of the investment, the level of security, level of innovation. So, we’ll continue to be up against this kind of – this backdrop, but I think, it’s still allowing us to grow at healthy levels and we’re trying to partner in a thoughtful way as much as we can.
Your question about the backdrop on nationalism today versus and years ago, I think you’d have to say, it has become a little bit more pronounced simply, because it wasn’t that nearly as prominent, a decade or so ago. But again, I think our job is to continue to innovate more closely with regulators and with our clients to have as much of an even playing field as possible and continue to show that processing on Visa or minimally partnering with Visa as your team has good advantages to it that people want to work with us.
Mike Milotich
Next question please?
Operator
Our next question comes from Harshita Rawat from Bernstein. Your line is now open.
Harshita Rawat
Hi, good afternoon. Thanks for taking my question. Al, if I look at a long-term history of your growth versus your largest competitor, it’s been quite stable more recently though the last one or two years, you’ve seen some Delta open up between your metrics and your peers. So, can you talk about some of the drivers of this and more importantly, if you look out next few years, can we expect the gap to narrow, because of what you’re doing with fintechs internationally in order to strengthen Visa direct?
Al Kelly
Thank you, Harshita. Look, both companies that perform extremely well on a number of dimensions, look at the most recent quarter, we’re very pleased with our results. And look, Mastercard had a great quarter and they’ve had some good quarters, the last couple of years as have we. That said a few points, first of all, volume metrics are – don’t have any standards attached to them and it’s really difficult to do an apples-to-apples comparison between the two companies and really understand what’s going on fully in terms of the volume.
On the revenue side, revenue Deltas have been a bit smaller in a number of the recent quarters is huge mix differences in our business. We’ve had a very big position in the United States and we want to trade that for the world. It’s just playing simple and much more mature market that doesn’t have the same high double-digit, mid double-digit, even over 20% kind of growth prospects to it. But we’re certainly pleased to have the partnerships with the banks that we have in the position that we have in the United States.
The last one I’d make is I – my expectation is based on the investments that we’re making in value-added services, in new payment flows, in working with fintechs, working with neobanks, working on engagement with our existing customers, building out our effective footprint that I’m quite confident that overtime, we’ll close that gap and continue to perform very well for our investors.
Mike Milotich
Next question please?
Operator
Our next question comes from Lisa Ellis from MoffettNathanson. Your line is now open.
Lisa Ellis
Hi, good afternoon guys. A question on Visa Direct, you mentioned the greater than 700 million transactions in 1Q. You’ve highlighted previously the Visa Direct was growing in the triple digit. So, I guess question one is it still growing that rate and then also how are the yields tracking in Visa Direct? I mean, is it sort of comparable to debit? I know there’s a lot of cross-border in there too. And last one, Al, related to Visa Direct, I promise that you mentioned a few new partnerships as you complete the Earthport integration. What are some of the major use cases for Visa Direct you’re seeing rolling in as we move through 2020? Thank you.
Al Kelly
So, first of all, Lisa, our growth of Visa Direct remains incredible. It didn’t quite get the triple-digit growth this quarter, but it was a very, very high single-digit, double-digit and close to that level. In terms of yields, we really haven’t talked much about it. but to your point, this addressing is going to increasingly have some more cross-border transactions that will run over that, that platform and that our push platform. and that is obviously a very – a very good thing for us. I think when we talk about use cases, I think they’re going to fall into some of the same topics they fall into today P2P disbursements, remittances and I think that those businesses will continue to grow. And you’ll see on Investor Day that we’ll highlight a good number of Visa Direct use cases with quite a few specific examples. So, we look forward to taking you through on 11th.
Mike Milotich
Next question please?
Operator
Our next question comes from David Togut from Evercore ISI. Your line is now open.
David Togut
Thank you. Good afternoon. Given the ongoing weakness you’re seeing in UK volumes and the incremental one point deceleration you called out, could you update us out on your growth pivot moving employees out of London and into some of the higher growth markets of Italy, Poland and Germany, and when might this growth pivot accelerate your volume growth in Europe?
Al Kelly
So, David, we don’t have any active plans to kind of move people out of the UK. We’re just playing simple as we grow the business, adding employees on the continent and certainly, adding the vast majority of employees, where we would add in that region or in market offices on the continent. First, I’d also comment that I’m certainly hopeful now that at least there is some clarity around the Brexit outcome that we might find a new normal in the UK that would allow their economy to pick up. Certainly, I was in Davos last week and certainly, the officials in the UK that I talked to feel as if it’s on the verge of starting to come back. We’ll see what happens.
in terms of the continent, in many of these markets, we’ve been behind playing simple. And over the last four or five quarters, we’ve been – after we got the integration behind as we started in investing in fairly significant ways and we’re winning deals and trying to build our credit business, build our acceptance footprint. And so it takes a little bit of time for the pipeline to work its way into the numbers. But I think over the next couple of years, we’ll start to see some real payback for the progress that we’re making now on the continent of Europe.
Mike Milotich
Next question please?
Operator
Our next question comes from Sanjay Sakhrani from KBW. your line is now open.
Sanjay Sakhrani
Thanks. I appreciate your commentary on the coronavirus, but I was wondering if you could dimensionalize the cross-border China business and maybe, any impact it may have and sort of how you could address it? And then secondly, on the three to four unplanned renewals, is there any context as to why it’s happening that banks are choosing to renew early? Thanks.
Al Kelly
So, on coronavirus, it’s – let me start, it’s certainly just too early to know. When we look at our numbers, we see some declines. But Chinese New Year this year was earlier this week, January 25, and last year in 2019, it was February 5 and spending slows around the holiday. So, we’re given that we’re about 12 days earlier this year, it’s hard to know what’s really impacting the volumes at this stage. As said, that’s definitely going to be impacted. I mean, when planes are being halted both in and out of China, and you’re probably reading as we are that companies were telling their employees to stay home. So, even for the e-commerce world, employees are staying home, who’s picking and – who’s picking goods and shipping them. So, I think for sure, there’ll be some impacts and – but we’ll have to see how pronounced it gets and how long it goes. I’m not into predicting game for that at the moment.
In terms of the early renewals, what tends to happen is probably about half the time, it’s us and half the time, it’s the client, who says as we’re talking to them about deepening our relationship and we’re talking about to them about all the dynamics that are going on in payments and/or we’re talking to them about building a deeper relationship by them consuming more and more of Visa’s capabilities and solutions. If a deal is going to be up in a year or a year and a half or two years – excuse me, that’s no longer than that. But if the deals are going to come up and say you haven’t had the two years or less, one of the two of us also the client will say, why don’t we just get our deal done and extend it out a number of years, so that we can focus on all of these capabilities and we can work together on trying to grow the business versus starting down a path, where we’re starting to consume – the client is starting to consume more Visa products. And then we have to halt everything while our teams on both sides go into negotiation mode and it just goes down the wheels of progress.
And I think what’s happening, because payments is just more complex than it was four or five years ago, and the number of offerings is greater than it was, even two or three years ago. I think that this is what’s kind of driving this, I don’t want to call it a phenomenon, but driving this occurrence. and this year, as Vasant said in his remarks, there are four decent-sized financial institution that were not scheduled to be up this year. They were not built into our numbers or incentive. One of them is already done, I referred to it in my remarks, which we saw then they on the deals that we did with them in South America. So there's three others where there's live discussion going on right now and it's too early to tell whether a deal definitely gets done or not, but my expectation is that more likely than that, at least a couple of them that were not planned will get done.
Mike Milotich
Next question, please?
Operator
Next question comes from James Faucette from Morgan Stanley. Your line is now open.
James Faucette
Thank you very much. I wanted to ask about the acquisitions that you've been doing, and perhaps the changing reporting, what that may indicate. In the past, Visa has done a lot of investments in companies and fintech, et cetera, even before fintech was coined as a term, but it seems like you've picked up, at least in the last year the pace of acquisition. Is this part of – should we expect more acquisitions and you'd be more active in actually acquiring companies that then you have been the past? Or is this maybe a little bit anomalous? Just wondering how you're thinking about incorporating some of the development that's happening outside Visa into Visa proper?
Vasant Prabhu
Well, I think I will add some more things. We'll talk more about this at Investor Day, but just a quick response to that question. I don't think we are deliberately stepping up the level of acquisition activity or investment activity in some kind of change of direction. Our approach has always been, we build any core capability and if it is faster or cheaper or the talent that we can get from the outside that would be valuable. Then you would consider acquisitions and there's a logic to every one of those we did. On the investment side, typically, when it's complementary capabilities, we prefer to partner and we do lots and lots of partnerships, as you know. Business has built on partnerships. Occasionally, we get into a situation where a company may like us to invest or we want to invest because we do want to enhance our relationship, get closer, have a better commercial agreement, get some exclusivity and so on.
The reason the volume has gone up to some degrees because as you know, there's a lot of activity nowadays in terms of companies with business models and capabilities that are very valuable to us, either as capabilities for us to own or capabilities to partner with. So it reflects what's going on in the marketplace too. And it will – the pace of activity will depend on exactly applying the criteria I just mentioned. It could go up if we find more than meets our criteria or it could go down.
Mike Milotich
Next question, please?
Operator
Our next question comes from Dan Perlin from RBC Capital Markets. Your line is now open.
Dan Perlin
Thanks. Al, you went through a pretty exhaustive list of breaking down core versus new flows and then reduced friction has kind of three big tenets of growth. Where I'm trying to, I guess parsed out, how do you break those down? I mean, it's core like 80% of the growth as we think about the next couple of years. Then layering in these other two to three assets? Or how should we kind of parse out that as we kind of think through all of these opportunities for you? Thanks.
Al Kelly
Well, yes, Dan, on Investor Day, we'll talk a lot about all three of these. To be very honest, we don't have a debt mix that we're trying to get to across the three items that you cited. We're trying to make sure that we do as well as we possibly can against all three, to try to make sure that we're delivering a sustained good level of revenue growth. And some of it will depend on what's happening at a particular point in time and economies and where we end up choosing to put investment dollars. So there's a lot of factors that go into it. But we're not setting out to hit some certain mix. We're setting out to do a really good job in our core business. We're doing to try to extend the business through new payment flows and value-added services. And with the acquisition of Plaid extend of business and our network and network business even further. So that's really what our objective is. Dan.
Mike Milotich
And one last question Jordan.
Operator
Our last question comes from Dave Koning from Baird. Your line is now open.
Dave Koning
Hey guys, thank you. When we look at cross-border, the reported volume growth all through last year was pretty slow and I know that has to do with just currency, right? But the revenue growth was way, way above volume growth. This quarter volume growth has gotten better, but the disconnect, I guess between volume and revenue has gotten smaller. Like that gap between volume and reported revenue growth has gotten smaller. Why is that? And should it be closer? Should it stay closer like that throughout this year?
Vasant Prabhu
Yes, the delta between volume growth and revenue growth are driven by a variety of factors. The most important of currency related, right? Most of the time the delta is driven by currency impacts. Clearly pricing plays a role. So there was some pricing in there that was causing the revenue growth to be faster than volume growth. Currency effects can then move in one direction or the other. And then when volatility is moving in a big way and this quarter, we had a very big move. If you're looking at volatilities, we are at five years lows now, not seen since 2014. Historically, those have corrected over time, so that we think is a transient thing. But when volatility has declined, the revenues related to those volatilities are also in that line. And this quarter those had a big impact. If volatilities were the same year-over-year, our revenue growth would have been fairly comparable to last quarter on the international fee line.
Al Kelly
Thanks, Jordan. And thank you all for joining us today. If you have any additional questions, please feel free to call or email our Investor Relations team. Thanks again, and have a great day.