Visa CEO Kelly sees payments industry relief on the horizon

Highlights from Squawk Alley anchor Carl Quintanilla’s Nov 10 CNBC Evolve Summit interview with Visa Chairman and CEO Alf Kelly

By Jeff Domansky, Nov 10, 2020

Between the pandemic, new competition, and a looming US Department of Justice antitrust lawsuit, let’s just say Visa, along with the rest of us, are living in challenging times.

Quintanilla opened the interview by asking about the recent election, the positive vaccine news, and where the payments industry will recover the quickest.

Visa Chairman and CEO Alf Kelly expressed optimism for his company and the payments industry’s future ahead. He started by saying uncertainty is never a good thing in business.

“The fact that it looks like there’s a resolution to the presidential race, that there’s some hope on the vaccine front, I think have people excited and hopeful. And I think after seven and a half or eight months of people being locked down or having their lives disrupted, people are anxious to get out and be able to do things,” Kelly said.

He noted the impact of the virus caused a big reduction in the use of cash and a corresponding increase in debit and credit card usage because of consumer concerns.

“E-commerce has exploded as people are now sitting home and working on their tablets or their computers or their mobile devices and wanting to continue to be able to shop. And we’ve seen an incredible increase in the number of people who, for the first time, are shopping in an e-commerce situation. We’re seeing governments become more interested in digital payments, and that’s a good thing.”

Blue skies ahead for travel?

Quintanilla asked about the pent-up demand for leisure as well as corporate travel.

Kelly said business travel and tourism are simply not an option right now but the hope of a new vaccine means leisure travel will rebound the fastest when consumers are able to travel to visit family, friends and again explore the world.

“Business travel is another story,” Kelly said. “I do think there is going to be at least a medium-term adjustment in the amount of business travel. How much remains to be seen. I still think it’s critically important to get out there and see clients and talk to your employees, etc. So I know I expect my travel to come back as soon as the restrictions are lifted, but I do think that, in general, it’s going to be a much slower recovery, Carl, on the business side than on the consumer side.”

Opportunities for Visa?

Quintanilla queried Kelly on the next best opportunities post-pandemic for Visa. “Is it going to be a story of chasing millennials? Is it going to be trying to take share from cash? How much of this is about M&A?” he asked.

Kelly said consumers have many more opportunities on how to spend with cash, checks, credit cards, and increasingly local payment preferences. “There’s still $18 trillion spent in the world on cash and checks. So that remains an enormous opportunity for us, and one that I think accelerates because of some concerns about viruses and germs and cash. We have great opportunities geographically.”

“People generally think about Visa as a network where you go and buy goods and services from somebody, and your money gets pulled from your bank account and gets paid to the seller or the merchant. We’re increasingly having our network work the other way, where we are supporting use cases where money goes back in your bank account,” Kelly explained.

He highlighted several examples of inbound payments such as after an insurance claim is settled where funds are sent directly to your bank account via Visa rails. “An Uber driver, at the end of a shift, can go on to their app and have their profits or pay from that day sent to them directly and immediately to their bank account using Visa.

Kelly said Visa powers all the big P2P players in the US and other countries as well. “When you and I, or one of my children and I move money between each other, that movement is happening on Visa Rails. And we call that capability Visa Direct.”

The Visa CEO said even though the company has 3.5 billion Visa cards in the world, used at over 70 million locations, he thinks both those numbers have room to grow particularly in the number of locations.

Interesting new markets

Several new markets have Kelly’s attention as well. “I’m hugely bullish on mass transportation. If we can create the — it could be habit-forming. If we can get people to use their credit card or their debit card on their ten commutes in the course of a week, it really starts to break them into the habit of using their card, and they’ll use it to buy their coffee in the morning and their lunch and maybe a snack in the afternoon, etc, and all of a sudden you’re getting a lot of transactions that heretofore you might not have gotten.”

He said he comes to work every day figuring out how to grow the pie. “It’s a unique part of our industry and makes it very, very exciting. Sure, we focus and nudge — get into skirmishes with our competitors over various corners of the pie. But, in general, my job every day is to come and figure out how to grow that pie. And that’s a very unique aspect of the payment and money movement space.”

Dead men don’t wear Plaid

Quintanilla finally got to the elephant in the room – the planned $5.3 billion acquisition of fintech Plaid and the pending antitrust lawsuit by the US DOJ.

Kelly said Plaid is a network just like Visa. “They sit between — in the United States, between about 11,000 financial institutions, banks, brokerage houses, etc, and about 2700 Fintech developers. They facilitate the movement of data. We facilitate the movement of funds or money.”

“Plaid is just, at its most simple level, it’s another network that we believe fits into our desire to have multiple networks on which we move information and money around the world. We continue to be very excited about them. I truly think that the government really doesn’t fully understand the differences here. And it’s, you know, disappointing, but we will fight this vigorously. And I believe we will prevail because this is a very pro-consumer play and I think people will recognize that as we get into it a little bit more,” he added.

Cryptic about crypto

While other competitors and fintechs have moved faster and embraced cryptocurrency, Kelly said Visa remains very interested.

“We’re interested in crypto that ultimately becomes fiat-based so there’s a clear understanding of the value when there’s an exchange of crypto for the purchase of a good or a service. We’re working with about 25 crypto players already in the world today,” he explained.

He said central banks around the world are exploring central bank-based digital currencies with China being the most advanced. Kelly said he foresees digital currencies running on the Visa network in the future as just another evolution in the company’s role in moving money and data around the world.

“I think crypto can play a role, especially in countries that are emerging markets where there’s a lot of underbanked and unbanked people in the world. And we think that number is about 1.7 billion people on the face of the earth that are not banked in the mainstream banking system, in whatever country they happen to live in, including some here in the United States,” Kelly said.

Small business is a critical market

Kelly said he values the importance of small businesses around the world. He highlighted how many businesses have suffered during the COVID-19 crisis and his belief that it an infrastructure bill is critical to taking care of small business owners and their employees as well as the overall economy in the US.

“This is a win, win, win where we can create an awful lot of jobs and, at the same time, improve the infrastructure of this country for the next generation. And I certainly hope that the next Congress can see the value of it, and we can get an infrastructure bill done and we can make sure that we’re taking care of small business owners. We’re certainly trying to do everything we can on our part to help small business owners,” Kelly said.

He wrapped the interview talking about the lessons learned from COVID including the need for companies to be more flexible regarding work from home, the future impact on his own company’s real estate footprint, and the many shifts in e-commerce spending and their impact on payments.