A recovering economy and the reopening of the borders are fueling a new spending dynamic for Visa Inc., and could also support the company’s more recent efforts to facilitate inter-company payments.
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had already benefited from a rebound in domestic spending, now indicates an improvement in trends for its cross-border business as more travel corridors open. Cross-border transactions, or transactions made by cardholders who are spending money in a country other than the country where their card details originate, are a critical part of Visa’s business model as the complexity of the company allows the company to charge higher fees for these transactions.
The company is still hampered by restrictions on international travel, which is an important part of cross-border spending, although CFO Vasant Prabhu sees positive signs in areas where traffic between countries is more free. U.S. consumer spending in Mexico increased 70% in May over the same period in 2019, he said, with the two-year comparison intended to offer a perspective on business performance versus pre-pandemic times. In addition, Greece opened its borders in mid-April and Visa doubled its cross-border spending in the country in six weeks.
“Consumers are showing a real desire to get started,” he told MarketWatch. “Wherever borders open, we immediately see clear bumps.”
Overall, Visa’s cross-border business ran to around 85% of 2019 levels in May, Prabhu said, with no transactions between European countries. That was an increase of six percentage points compared to the quarter of April 2021.
The COVID-19 crisis has meant that Visa may no longer be so reliant on travel to fuel cross-border spending in the future. Before the pandemic, travel made up two-thirds of cross-border business, with e-commerce spending the rest. Now the balance is upside-down, in part because cross-border travel has still stalled, but also because shoppers, especially outside of the US, are more convenient to shop online from international sellers, Prabhu said.
In general, Visa relies on being able to participate more in the flow of money between countries. The company is best known for making card payments possible for consumers, but it has made greater efforts lately to get involved in the flow of money between companies, which is a lucrative but complex business, especially when it comes to companies that are international Operate commercially.
While companies in the past have not preferred to pay each other using traditional credit or debit cards, Visa has expanded its business beyond cards to capture new types of money movements. The company acquired Earthport two years ago, which enabled it to connect to additional card-based networks and domestic systems for automated clearing houses (ACH) while Visa itself was already bringing 5 billion cards and accounts to the table. The goal is to help businesses or people pay each other in a variety of ways, be it from a card to a bank account or from a bank account to a bank account.
“We are merging an extraordinary number of networks into a single network,” said Prabhu.
This wide presence in various payment networks is why Visa believes it can be an attractive option for companies looking to send money internationally, both to suppliers and to those who work for them in other parts of the world. The company sees a $ 10 trillion market opportunity in cross-border business-to-business (B2B) payments.
The process of sending money internationally has generally been complex, Prabhu said, as companies wishing to do so may have had to use different platforms depending on where they were sending funds, how large the transaction amounts were, or how often their payments would take space . Visa’s interactions with different types of networks mean that companies can use its B2B Connect platform for different types of transactions in a simplified manner and with more security in terms of exchange rates and security protocols, he continued.
Visa announced on Monday that it has entered into a new partnership with Goldman Sachs Transaction Banking that will focus on sending money internationally. Goldman Sachs has “a single connection for any type of cross-border payment” that it can use to help its customers get their money where it belongs.
Visa saw some negative impact on its B2B cross-border dynamics during the pandemic, particularly from smaller businesses hit by COVID-19, Prabhu said, but the company is now seeing that area come back. And in general, he sees an urge from companies to digitize more parts of their operations, including payments.
The company’s efforts to expand beyond card payments are also helping it enter other areas of international money transactions, including cross-border transfers. The remittance market is “as big as FDI,” said Prabhu, and Visa is “really for the first time in” [its] history ”, which enables this type of cash flow thanks to partnerships with major remittance providers.
“We’re moving into areas we’ve never served before,” he said, “and helping people move money across borders in ways that go beyond paying merchants.”