U.S. Will Lag Mobile Pay Shift, Visa CEO Tells IBD

Investor's Business Daily

2013: A Look Back And Ahead Visa (NYSE:V), the world's largest payments network, has shown impressive growth since it went public in 2008, in what remains the largest U.S. IPO by deal size.

Revenue and profit growth have hit double-digits every year. Shares have more than doubled, setting a record high on Dec. 20.

But Visa is not immune to head winds. While the card giant has managed to keep growing in the face of new financial regulations, its U.S. debit business took a hit after new rules kicked in more than a year ago.

And it has had to grapple with a sluggish economy and tax uncertainties in the U.S.

On Nov. 1, Visa ushered in a new CEO, Charles Scharf, a longtime board member. For nine years he ran the retail financial services arm of JPMorgan Chase (JPM), a major issuer of Visa cards. Most recently he was managing director of One Equity Partners.

Scharf recently talked with IBD about his hopes for a "good solution" to the fiscal cliff and why America won't lead in mobile payments.

IBD: With so much uncertainty with the fiscal cliff, how do you see what's going on in Washington impacting Visa and consumer spending in 2013

Scharf: We think about our business in much broader terms than (Washington). Markets outside the U.S. are getting close to half of our business. The growth rates are consistently higher than in the U.S. and those markets will be even more important over time. It's where we put a lot of our effort and attention.

When we think about 2013, 2014 and 2015, we think that we have a global opportunity.

IBD: Right now over 50% of your business is still in the U.S. If jobs and incomes don't grow much here, won't consumer budgets tighten

Scharf: We feel we can continue to gain share on the credit side in this country. We have great partners with some of the biggest and best banks as well as with the co-brand relationships. And in this country we will still benefit from the continuing shift away from cash and checks to credit cards, debit cards and prepaid cards.

IBD: What government policies would have the most negative impact on the stock market, and thus spending by affluent cardholders

Scharf: Anything that negatively impacts consumer confidence would hurt people's willingness to spend at all levels, including the affluent. That's why the best thing for us, the country and for the country's competitiveness is a good solution out of Washington.

IBD: What do you consider a "good solution out of Washington"

Scharf: Specifics honestly to us are less relevant than something that people agree on and that is viewed by the market as solving the debt problem.

A workable bipartisan solution would be positive for consumer confidence; it would help the economy and ultimately help us.

IBD: Now that Visa has gotten past Durbin and other financial-reform regulations in the U.S., what is the next big challenge facing the electronics payments industry

Scharf: What we've got going on broadly in the payments industry is that technology is changing the nature of what's being done.

It creates a huge opportunity for us to touch more people across the globe.

IBD: How long do you think it will take for mobile payments to really ramp up in a meaningful way

Scharf: It depends on what part of the world you're talking about. I think in the U.S. it will take longer. Physical cards are well established in this country. People are used to them. And my guess is that it will take quite a bit of time to evolve. But eventually it will go mobile.

In parts of the world where cards don't exist, where the Web and access to the Web don't even exist but where like Africa there's a proliferation of phones, we're going to see mobile adoption much quicker. We're seeing it already.

IBD: In developing markets, will new players such as Western Union and the telcos be getting in on the rise of prepaid cards and the ability to put funds on mobile phones

Scharf: I think they are all there and they are all in. And everyone is trying to figure out how they can help this develop.

First and foremost the banks are our partners and wherever we can we're going to partner with a bank. But just like them and everyone else, we've got direct contact with governments and mobile network operators to figure out how our solutions can work.

IBD: How are you addressing affluent customers

Scharf: It's a combination of making sure we have a card to make it attractive for banks to issue, then we work with the banks to make sure it's got the right rewards or other things to make it an attractive card for the customer.

And then there are things we can do like leveraging the Olympics and World Cup so we can help create a differentiated experience for the affluent card holder.

IBD: Do you expect travel, dining and other discretionary purchases to grow in 2013? And if so where

Scharf: Yes, and everywhere. I just spent three days with our team going through business reviews. And we see very consistent growth across the globe.

People are spending less with cash and more with electronic payments and that benefits us across every single category.

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