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Jan 30, 2020

Visa shares drop on warning client incentives will rise in 2020

Visa Inc. credit and debit cards Photographer: Andrew Harrer/Bloomberg

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Visa Inc. said the incentives it hands out to banks and retailers will climb faster than revenue and are on track to be at the high end of its targeted range for 2020.

Visa last year renewed its longtime partnership with JPMorgan Chase & Co., and has been spending more on rebates designed to encourage banks and retailers to route transactions over its network. Those incentives added up to US$1.75 billion in the first quarter, a jump of 20 per cent.

Key Insights

  • Visa has said it’s benefiting from the shift to tap-to-pay cards at transit systems like New York’s Metropolitan Transportation Authority. Visa’s network handled 49.3 billion in transactions during its fiscal first quarter, a 11 per cent increase, as spending on its cards also climbed.
  • While client incentives are expected to climb, the first quarter figure fell short of the US$1.82 billion average of analysts surveyed by Bloomberg.
  • The company kept its annual expenses target of mid-single-digit growth after announcing the US$5.3 billion purchase of Plaid this month.
  • Investors are keeping a close eye on cross-border spending at Visa and its rival Mastercard Inc. to determine whether the spread of the coronavirus could weigh on consumer confidence around the world. Visa said overseas spending climbed 9 per cent in the quarter, the highest in more than a year.

Market Reaction

  • Visa shares fell 1.6 per cent at 4:25 p.m. in late trading in New York. They’ve risen 50 per cent in the last year, compared with the 46 per cent advance of the S&P 500 Information Technology Index.

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  • “We continue to have great success in building and renewing partnerships and growing our acceptance network,” Chief Executive Officer Al Kelly said in the statement announcing fiscal first-quarter results. “We are excited about the recent announcement to acquire Plaid which will enhance the growth trajectory of our business well into the future.”