Jack Carsky - Head of Global IR Charlie Scharf - CEO Vasant Prabhu - CFO.

David Togut - Evercore ISI Chris Brendler - Stifel Smitti Srethapramote - Morgan Stanley Lisa Ellis - Bernstein Bob Napoli - William Blair Craig Maurer - Autonomous Sanjay Sakhrani - KBW Darrin Peller - Barclays Dan Perlin - RBC Capital Markets Jason Kupferberg - Jefferies Bryan Keane - Deutsche Bank Glenn Greene - Oppenheimer Kevin McVeigh - Macquarie Ken Bruce - Bank of America Merrill Lynch James Schneider - Goldman Sachs Tien-tsin Huang - JPMorgan David Hochstim - Buckingham Research.

Welcome to Visa Incorporated's Fiscal Q3 2015 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.

Jack Carsky, Head of Global Investor Relations. Mr. Carsky, you may begin..

Thanks, Jamie. Good afternoon everyone, and welcome to Visa, Inc's fiscal third quarter earnings conference call. With us today are Charlie Scharf, Visa's CEO, and Vasant Prabhu, Visa's CFO. This call is currently being webcast over the Internet, and is accessible on the Investor Relations section of our website at www.investor.visa.com.

A replay of the webcast will also be archived on our site for 90 days. A PowerPoint deck containing financial and statistical highlights of today's commentary was posted to our website prior to this call. Let me also remind you that this presentation may include forward-looking statements.

These statements aren't guarantees of future performance, and our actual results could materially differ as the result of a variety of factors. Additional information concerning those factors is available in our most recent reports on forms 10-K and Q, which you can find on the SEC's website and the Investor Relations section of our website.

For historical non-GAAP or pro forma related financial information disclosed in this call, the related GAAP measures and other information required by Reg G of the SEC are available in the financial and statistical summary accompanying today's press release. With that, I'll turn the call over to Vasant..

Thank you, Jack. We reported another solid quarter of financial results, with strong revenue and earnings growth against an economic backdrop that continues to be uncertain. Most of our results were in line with our expectations going into the quarter, with a few highlights and exceptions. Let me speak to those first.

First, we recognized a tax benefit of $280 million. When we last talked to you in April, we had estimated that this would be a fiscal fourth quarter event, so this is essentially a change in timing. This resulted in an effective tax rate of 22% in Q3, and shifted $0.12 of EPS into the third quarter from the fourth.

Based on this shift, we now expect our tax rate in the fourth quarter to approximate 34%, and for the full year we are now anticipating a rate between 29% and 30%.

Second, revenue growth of 12% on a nominal basis was significantly higher than we anticipated, in spite of continuing foreign exchange rate headwinds of approximately 3 points in the quarter.

Revenue growth out-performance was driven by sustained high currency volatility that substantially offset the foreign exchange rate headwinds, as well as low client incentive levels than previously presumed.

Third, our expectation for higher client incentive levels in the third quarter did not come to pass due to lower payment volumes and performance adjustments in specific geographies, as well as the timing and impact of certain issuer deal renewals. Some of these client incentives are shifting to the fourth quarter as these deals are signed.

As a result, client incentives will be higher in the fourth quarter, both in dollars and as a percent of gross revenue. Despite this, we now expect client incentives for the full fiscal year at the low end of the 17.5% to 18.5% range. Finally, we revalued the Visa Europe put option, taking $110 million non-cash, non-operating expense.

The increase in value of this liability was a result of an increase in estimated Visa Europe adjusted sustainable income. As a reminder, US GAAP requires us to estimate the put option liability each quarter. Moving on to the quarter’s business drivers and our financial results.

Global payments volume growth in constant dollars for the June quarter continue to be solid at 11%, in line with the March quarter. The US grew 9% and international grew 14%. In the June quarter, US credit grew 12%, flat compared to the March quarter, as the effects of the Chase conversion begin to wane.

US debit grew at 6% in the June quarter, down about 0.5 point compared to the March quarter. Gasoline prices continue to have a significant negative impact, reducing growth in aggregate US payment volumes by approximately 3 percentage points.

We continue to see the largest share of these savings going to debt repayment and stronger consumer balance sheet. International payments volume growth of 14% was powered by China, the Middle East, southeastern Europe, and South Asia.

The modest uptick in growth rates versus last quarter was driven by the initiation of domestic payments volume reporting by a large Chinese bank. More recently through July 21, US payments volume growth was 10%, with US credit growing 12%, and debit 8%, not materially different from Q3 trends.

Global cross border volumes registered their third consecutive quarter of 8% constant dollar growth, though the international component declined 1 point to 9% compared to the March quarter. As has been the case all year, out-bound corridors of Russia, Canada and Brazil remain challenged.

Brazil, in particular, was hurt both by a weak currency on issuing, and lapping the FIFA World Cup on acquiring. The strong dollar has continued to depress in-bound commerce into the US.

As we look ahead to the fourth quarter, we're monitoring travel into South Korea due to the Middle East Respiratory Syndrome virus, also known as MERS, and the impact on out-bound Chinese travel from the recent equity market correction. In Venezuela, currency controls have effectively shut down the cross border business for private banks.

The bolivar continues to depreciate, and we have moved to local currency collection. All this will significantly reduce revenues from our Venezuelan business for the foreseeable future. On the positive front, out-bound US spending remains robust, as well as cross border trends across the rest of Latin America, Asia-Pacific, and the Middle East.

Through July 21, cross border volume on a constant dollar basis grew 8%, with a US growth rate of 7%, and an international growth rate of 8%. Transactions processed through Visa’s network totaled $18 billion in the fiscal third quarter, an 8% increase over the prior period, but down 3% from the March quarter.

The US grew 8%, while international delivered 7% growth. As most of you know, in Russia, we transferred domestic processing to the new national processor NSPK in April. This resulted in an aggregate 2 point decline in process transaction growth in the June quarter.

We expect this drag on process transaction growth to continue for the next three quarters, approaching almost 3 percentage points each quarter. Through July 21, process transaction growth was 8%, with a US growth rate of 10%, and an international growth rate of 1%. The international growth rate, of course, being impacted by Russia.

Now to financial results. Net operating revenue in the quarter was $3.5 billion, a 12% year-over-year increase, and was driven by solid results across all revenue line items. Strong global payments volume drove service revenue to $1.6 billion, up 9% over the prior year. The quarter also benefited from previously announced pricing actions.

Data processing revenue was $1.4 billion, and grew 6% over the prior year's quarter based on continued strong growth rates in Visa-processed transactions, both in the US and internationally. While on the subject of data processing revenue, let me call out a dynamic associated with the transition of Russia domestic processing to the NSPK.

While we are no longer processing these domestic transactions, we continue to own the issuer-client relationships. For this reason, we will continue to recognize the associated processing revenue in our data processing revenue line.

This will be offset by payments to NSPK for the actual processing, which will flow through our network and processing expense line. In short, the revenues stay the same as before, but our expenses will increase.

International transaction revenue grew 21% to $1 billion as the impact from the previously announced pricing actions and higher currency volatility offset soft cross border volume growth. As expected, total operating expenses for the quarter were up 11% over the prior year.

Higher personnel costs were the key driver, impacted by above normal employee incentive accruals, tied to better than expected year-to-date performance.

In terms of the fiscal fourth quarter, we still expect net revenue growth to approach double digits, despite continuing foreign exchange rate head winds, and higher client incentives than we had in the third quarter.

Expense growth rates will moderate from Q3 levels, with the full-year growth rate coming in as we expected in the mid single-digit range, which is a couple of points higher than current consensus. For fiscal 2015, we now expect to end with double-digit constant dollar net revenue growth, and mid-teens adjusted EPS growth.

We were active in the market in the quarter, repurchasing a total of 15.5 million shares at an average price of just over $68. Fiscal year-to-date, we have purchased 44.1 million shares at a price of just under $66 per share for a total of $2.9 billion. We currently have authorization to repurchase up to $2.8 billion of stock.

Finally, some early observations on fiscal 2016. As we look ahead, currency volatility could moderate from record levels, reducing the revenue contribution of cross border transaction. We will lose the benefit of recent conversions, and absorb the full-year impact of large deal renewals happening in the fourth quarter.

Also, China startup costs remain unclear at this time. On the positive front, we're heartened that despite an uncertain global economic environment, payment volume growth has remained steady and healthy. We hope that as the dollar stabilizes, cross border growth rates will accelerate. And in the US, we will lap the sharp declines in gas prices.

We're working through the details of these and other headwinds and tailwinds, and how they might impact us next year. As we always do, we will provide a more comprehensive point of view when talk to you again after the fiscal fourth quarter. And with that, I'll turn the call over to Charlie..

Thank you very much, Vasant. And good afternoon to everyone, and thank you all for joining us. I guess, let me start by just reiterating how pleased we are with our quarterly results. As Vasant mentioned, revenue growth of 12% was better than we anticipated, especially given the FX impact of about negative 3 points.

Adjusted net income growth was 33% as our anticipated tax benefit was accelerated to the fiscal third quarter from a previously expected fourth quarter. Adjusted earnings per share of $0.74, excluding the revaluation of the Visa Europe put option, and including $0.12 from the tax benefit I just mentioned.

Payments volume growth of 11% on a constant-dollar basis, the effect of a strong US dollar and lower gasoline prices continued to negatively impact growth by three points. And processed transactions and cross-border volume both grew at 8%.

Overall, our results were especially pleasing given that we continue to see very little change in the overall global economy, with a few exceptions. We are hopeful, but not counting on an improvement in the US economy, but we see very little improvement with the US consumer in our numbers thus far, if any.

There are positive signs in employment and housing, and the accumulated savings from lower gas prices should help, but we'll have to wait and see. Internationally, we see continued weakness in Brazil and Russia, but we see strength in southeastern Europe and parts of Asia-Pacific.

I'd like for a second to just address the topic of Visa Europe for a moment. As you may have read in our earnings press release and 10-Q filing, we've updated our language regarding the put option valuation, which Vasant just covered. Separately, we announced that we're in discussions with Visa Europe about a potential business combination.

I've said many times that we believe there is compelling logic for both Visa, Inc., and Visa Europe to merge, and is something we would like to pursue. So this should not be a surprise to anyone.

We’re targeting to resolve these discussions quickly, certainly by the end of October, and we'll provide an update during the fourth quarter earnings call, if not sooner. Given these discussions, we may be restricted from buying back our stock. There's also no assurance that any transaction will ultimately be agreed or implemented.

At this time, there's really nothing more we can add, and won't comment beyond what I've said here, or disclosed in our 10-Q. Rest assured that when there is an update to be made, we'll do so in a public forum. Let me move on now and talk about our business, and let me start with our client-related activity, which I feel great about.

Starting with our issuing co-brands, we renewed our co-brand credit card partnership with Southwest Airlines in the United States. Visa will continue to be the exclusive payment network for Southwest's terrific co-brand credit card. This renewal is an extension of our 15-year-long standing partnership with Southwest Airlines.

It represents one of our largest and fastest-growing co-brand partnerships in the world. We renewed an important co-brand partnership with Avios, the loyalty program for British Airways and Iberia, a partnership with Visa covering the United States, Canada, Bermuda, and the Caribbean.

AAA extended our longstanding 37-year credit card partnership agreement. We also renewed the credit card portfolio for Wyndham Rewards, the loyalty program for Wyndham Hotel Group, the world's largest hotel company based on number of hotels.

And turning to our business internationally, we renewed our strategic credit partnership with Shinhan Card, the largest issuer in Korea, and Lotte, another top-10 issuer in Korea for debit and credit. Softbank SB, Japan's third-largest mobile carrier has partnered with Visa to launch a new pre-paid card offering to their 37 million subscribers.

And Gazprombank, one of Russia's largest financial institutions, renewed a multi-year debit and credit agreement. Let me make a couple of comments about China. I don't have very much to add since we last talked about it last quarter, but I want to reiterate a couple of things.

We continue to move forward with our work to enter the domestic Chinese payments market, and look forward to growing our investment within China. Our business model, as you all know, is about partnership with banks, retailers, governments, and technology companies.

We believe our ability to help them grow will help accelerate broader economic growth within China, both in the cities as well as the rural areas. And we continue to view this as a significant and important opportunity, and one which is very long term in nature. Vasant talked a little bit about Russia.

Here we completed the full migration of our domestic transaction processing to the NSPK in accordance with the law. As Vasant said, Visa is now only processing cross-border transactions into and out of Russia. And our work to transform commerce and build out digital payment platforms to support our clients continues.

First on Visa Checkout, we continue to gain momentum. We have over 270 financial institution partners globally. We have over 160,000 merchants who are currently live globally, with over $50 billion in total addressable volume.

New merchant partners include US companies such as Under Armour, Taco Bell, Dunkin' Donuts, Williams-Sonoma, Eddie Bauer, Living Social in Canada, and Starbucks in Australia. To date we have over 5 million registered users, and we’ve launched Visa Checkout in 16 markets around the world.

New markets include China, Hong Kong, New Zealand, Singapore, Brazil, Colombia, the UAE, and South Africa, to name a few.

We continue to see great reactions from our merchant clients, and have launched several new global marketing campaigns, including with Dunkin' Donuts, Zulily, and Fandango in the US; and Cineplex theaters and Indigo Books and Music in Canada. Second, we continue to expand the Visa token service.

More than 2,300 financial institutions and banking partners are participating. In addition, Apple Pay in the US and Google globally. International expansion of our token service will begin later in the fall within our US, Canada, and Asia-Pacific regions, and allows us to begin tokenizing Visa Checkout.

Third, we continue to build out our capabilities to support our merchant partners. We are partnering with Verifone in a way that enables merchants to offer their customers a more streamlined secured purchase experience across digital and face-to-face commerce environments.

Verifone will connect its point-of-sale gateway to Visa's CyberSource global merchant payment management platform, providing merchants with a single platform to protect customer payment data, mitigate fraud, and integrate digital and off-line payment systems. Last, but equally important, is payment security.

Obviously, this is an area which is evolving, and for us we're doing everything we can to differentiate ourselves through innovation. Given the current cyber-threat landscape, especially facing merchants, we're committed to developing solutions to help the industry better detect and respond to data breaches.

We announced a partnership with FireEye to bring the first of its kind cyber-security capabilities to the payments industry, and extend our combined expertise and intelligence to acquirers, merchants, and issuers of all size.

The Visa and FireEye community threat intelligence system will bring together threat information from both companies, allowing merchants and Visa clients to easily access our leading knowledge of cyber-attack data to quickly detect and respond to the attacks.

These new solutions will focus on minimizing risks and vulnerabilities, and detecting and responding to breaches faster. On a final note, regarding FIFA and football, for our investors, but also our clients and all of our partners.

We view the stewardship of our company, our brand, and our clients with the utmost importance, and try to hold ourselves to the highest standards. We seek to partner with those who think and act like us. I don't believe that FIFA is living up to these standards.

Furthermore, their subsequent responses, in my opinion, are wholly inadequate, and continue to show lack of awareness of the seriousness of the changes which are needed. To this end, we believe two things need to happen to ensure credible reform.

First, an independent third-party commission, led by one or more impartial leaders is critical to formulate reforms. Second, we believe no meaningful progress can be made under FIFA's existing leadership.

Football itself is a great sport for which we are proud to be associated, and we want to be proud to be associated with FIFA, and hope and look forward to working with them to that end. To close, I just want to reiterate that we are pleased with our financial performance to date.

Although we will provide full-year 2016 metrics next quarter, we feel good about our business, our performance, and our innovation initiatives, which should drive our success in the future. And as a reminder, we have nothing incremental to say about our discussions with Visa Europe. With that, Vasant and I are ready to take your questions..

Jamie, we’re ready for questions..

[Operator Instructions] Our first question comes from David Togut, Evercore ISI. Sir, your line is now open..

Thank you, good afternoon.

Charlie?.

How are you?.

Very good, thanks.

Could you talk about your strategic options in Europe in the event that you don't consummate an agreement with Visa Europe? In particular, have you looked at possibly acquiring some of the domestic payment networks in Europe?.

Listen, we have and I have talked about this broadly, as well. We have a terrific relationship with Visa Europe today. We have been operating in the fashion that we have been operating now since we’ve gone public. We work closely together on a day in and day out basis.

And they have responsibility for the business and the brand in Europe, and we do everything we can to enable them, and vice versa. And that's the relationship that we would see continuing if these conversations didn't move forward..

Thank you..

Jamie, next question..

Our next question comes from Chris Brendler with Stifel. Your line is now open..

Hi. Thanks, good evening. Thanks for taking my question. I just wanted to talk about the strong growth in cross-border revenue this quarter, how sustainable that is, and whether or not you see additional opportunities for pricing down the road? Thanks..

Yes we had, as you saw, good growth in cross-border. It's a few things. We talked about the geographies that are doing well, and some -- we were helped on cross-border revenue growth by two other things, as you know, pricing and also by currency volatility, so we got spread revenues that flow through that line.

As we look ahead, I think if the dollar starts to moderate, a big chunk of our business is somewhat depressed right now, which is the commerce into the US, and several corridors are soft, like Brazil, which was hurt in a couple of different ways, Russia, et cetera.

So there is hope as we go into next year that with some of those things now lapping and the dollar hopefully stabilizing, that things could ramp up in terms of volume. On the other hand, volatilities may go back to more normal levels and would reduce that line. So a couple of different trends there, but all in all we feel good about it..

Excellent, fantastic results. Thank you..

Next question, Jamie..

Our next question comes from Smitti S., Morgan Stanley. Sir, your line is now open..

I know it's early days so far, but I was wondering if you could share with us qualitatively if the transactions that you're seeing taking place on Apple Pay and other mobile payment systems starting to take share away from cash transactions from consumers who use it, or is it mainly just a basic substitution of classic for mobile at the moment?.

I honestly don't think we have enough real data yet to talk intelligently about it. All I can talk about is my own experience, which is I've been using it for both. But, I mean, when we have more acceptance, and we start to see more transactions, we'll have a much better feel and we'll make sure we share that..

That’s fair enough. Thank you..

Next question, Jamie?.

Our next question comes from Lisa Ellis. Your line is now open..

Hi, guys.

Can you talk a little bit about your competitive strategy against PayPal now that they are independent, and to what degree you view them as a competitor, and what sort of specific competitive initiatives you have in place?.

Sure. I've talked about our relationship with PayPal in the past. I'm not sure it changes vary dramatically, whether they're owned as part of a broader company or they're independent. Something like half the transactions that go through eBay wallets are on general purpose cards, of which we are roughly half, and that's important.

But they also have a very big business that they then use our transactions to mine from, to disintermediate our clients' relationship with us, and the client's relationship with our clients, ultimately which are their banks. And so that's something which is -- which has to evolve, and is not something that we think is sustainable for the long term.

Our view is when we think about what we have got to do in the market place, we actually don't spend a lot of time thinking about what PayPal is doing or what we're doing any more or less than we look at all the interesting people – things that people are doing in the world of digital commerce.

What we're focused on is the fact that we're lucky enough to have a platform and have a client base where we're the leader in the payments business globally. Commerce is moving to digital platforms. Forget about all of our competitors or people who want to compete with us.

We're doing everything that we can to ensure that we're going to be as successful in the world of digital commerce as we have been face to face. And so to that end, you see our solutions in the marketplace such as Visa Checkout, which I obviously covered here and I've talked about elsewhere.

But it also relates to all the other mobile solutions and digital solutions that you've heard us talk about, everything from our token service to the digital enablement program, as well as even more broadly opening up APIs and access, and allowing others to access our services in a way that inserts us as the payments network into experiences that people are building.

So that's what we're focused on, and it's very much focused on the opportunity that exists in the world, and not any one individual company out there..

Terrific, thanks..

Thanks, Lisa..

Our next question comes from Bob Napoli, William Blair. Your line is now open..

Thank you. I know you said nothing on Visa Europe, but maybe this is something you could answer.

When you did change the valuation on the put option, can you tell us what you're looking at, like what information you're looking at to change that? And then I know there was a formula out there, put call for buying it, is that – if the transaction happens, would it be under that previous contract formula?.

Yes, I'll talk about how we go about the put valuation. And in general, I think we're not commenting anything on the transaction discussions themselves, but we do have to revalue the puts every quarter, and it has to be done on the basis of updated information, the most up to date information we have.

And based on that, we did that again this quarter and as a result of that, we came up with a value that is reflected in our Q.

And that is the formula that we’ve used, I believe for the entire eight years that the put has been in place and it relates to making estimates of what a sustainable net income would be and then there is a multiple applied to that, all of which is described some detail.

So when you run through that based on the information – the best information we now have to estimate sustainable net income for Visa Europe, and you look at the multiples you have to apply, methodology being exactly the same as what we've used before, you get to the value we laid out in our 10-Q. So that's pretty much all there is to it.

There really isn't anything different than we've done before..

The only thing that I would add to that is that and as I referenced, we spend a lot of time with Visa Europe because we're connected at the hip.

And it's very clear that with their change in leadership over the last year and a half, they have moved to a more commercial model, and increased what they would view as the economic that they are providing for their clients. And that translates through to this view of sustainable income that we've been able to observe that Vasant just referenced. .

Jamie, next question?.

Our next question comes from Craig from Autonomous, your line is now open..

Craig, are you there?.

Yes, can you hear me?.

Hi, Craig. We got you.

How are you?.

Okay. I have a question on commercial card.

We've been seeing weakening trends across several issuers, including AMEX and USB, and I was hoping that you could comment on what you're seeing in that segment?.

Yes, in general we had a good quarter on the commercial card. Volume growth in the US for commercial payments – volume is 10% in the June quarter. It continues to perform well. We renewed several multi-year US and Canadian clients.

There's a lot of interest from non-financial institution participants who want to provide value-added services within the payments and commercial payments industry. These would be things like technology providers or health care entities and B2B programs, entertainment verticals, and so on. So all in all, we feel pretty good..

The only thing I would add to it is that when we look at the detail behind the numbers, you actually do see a fair amount of divergence based on the type of clients that you have. So clients that are focused on the oil industry, and it's a long list of them, you do see fairly significant weakness, which is to be expected.

But on a portfolio basis, there are other types of businesses that are performing much better. So overall, we do get here in the US that 10% number, but a lot more differentiation than at least we've seen recently..

And is virtual card starting to play a big role in commercial payments?.

Honestly, it's still very small, but obviously something we're focused on and growing..

Thank you..

Next question, Jamie?.

One moment. Our next question comes from Sanjay Sakhrani, KBW. Your line is now open..

Hey, just philosophically, I was wondering if you could rehash, Charlie, how you would think about a large M&A transaction and the criteria you would use to assess its value, and kind of go forward with the deal? Thanks..

Sure. What we've said consistently is first of all, we would start with – our first preference would be to grow organically. We've got facing assets and we've got amazing people here that have built great things without having to rely a lot on acquisitions.

And that really – and it genuinely is our first and foremost way that we want to go about building things. Having said that, there are certainly times when it makes sense to buy things. I always like to point back to the three things that we've done so far, as the type of things that we think could continue to make sense.

CyberSource was the most significant acquisition that we've done in the payment space, and we're not looking to get outside the payment space. Things that we do want to strengthen the benefits that our clients get of running transactions over our core network. And CyberSource allowed us to broaden the capabilities that we had in the online space.

So just in the core of the business, but made tremendous sense for us. We then bought a company called PlaySpan, which at the core of what we from PlaySpan was technology and people. And those people and that technology is what built and powers Visa Checkout today.

It wasn't for the rest of the business at PlaySpan; the rest of it was actually very small. And then the Fundamo business, which got us far more engaged and understanding, and brought us some capabilities in the mobile payment space in the emerging markets.

And so, as we look at the type of transactions that we're looking at, what we've said is, there is -- Europe is the big one that could be on our radar screen because that put exists, and because of this compelling logic and beyond that we're mostly focused on smaller things that again would add to the capabilities of the existing network that we have..

Is there a specific financial criteria that you would look at?.

No, I think every one of these deals were different. I mean, take the deal that I just described. You evaluate them differently, including what it would cost you to go build something versus acquiring it, and how much time it would take to get to market, and what that would be.

I did not talk about a fourth company because it's small, but very important that we just acquired called TrialPay, which inserts us into the merchant to merchant offers business. We bought that because we thought it was important to get in the market sooner, and the time it would take to build it would be much longer than that.

So, each one of these I think would have a very different rationale, and if it was a big enough transaction that we would talk about the economics, we know we would have to have compelling logic, both strategically and financially for you all..

Thank you..

Next question?.

Our next question comes from Darrin Peller, Barclays. Sir, your line is now open..

Straightforward, but just one question. I mean, it looks like -- I think we saw a shelf was filed.

So, whether or not something actually happens with Visa Europe, can you just remind us again how you think about balance sheet flexibility or debt leverage possibilities? And then really, just in terms of capital structure and use of cash, I think you mentioned there could be restrictions on buybacks.

Is that included in your guidance for the year? Thanks, guys..

Yes, I’ll. In terms of a Visa Europe transaction -- if it happen, should it happen, when it happens -- we've always said that we would be viewing that transaction as an opportunity to do two things at one time.

Clearly, it's a great transaction in terms of reuniting the Visa family, but beyond that we would also use that as the trigger to put in place a long-term capital structure. I don't think our views on that have changed much.

In terms of the second question, Jack, was there another question on that one?.

It was around buybacks, and whether or not –.

Oh, on buybacks, yes. As you know, I mean, there are certain rules under which companies can and cannot buy back stock depending on the information that is either available or not, and how material it is, and all that. It is our sort of sense at this point that we might not be able to buy back stock in the quarter, but things can change..

Is that in your guidance already?.

In terms of our -- its impact on our guidance, if we end up not buying back stock for the entire quarter that's what happens. It will have some modest impact on this year. It will certainly have some impact on next year, depending on whether we catch up later on and so on. So, there's a fair number of variables there.

It depends on how long we're not buying, and how fast we catch up all those kinds of things..

For one quarter it's not that significant..

Yeah, for one quarter, as you can run the numbers yourselves, it won't be that significant. But it is certainly different than what we might have expected when we last talked to you. So, you should definitely factor that in..

All right. Thanks, guys..

Our next question comes from Dan Perlin, RBC Capital Markets. Your line is now open..

I want to revisit a comment you made earlier about -- let's just say competitors who use your information to mine data to ultimately change behavior away from your bank partners.

I'm just wondering would the operating rules that you set forth in VDEP be a means with which to preclude that practice from happening?.

Well, in VDEP -- VDEP does address the usage of our clients' data. So, the answer to the question is absolutely and I think the reality is we sit between a series of people that participate in payment systems. It used to be just the issuers and the acquirers and the merchants. Now there are additional parties being introduced to that.

And we do think it is our responsibility to all of our clients to ensure that data is being used appropriately and the way they want and that's two ways. So, whether it's issuer data that passes over our network, the issuer should be comfortable with and if it's merchant data that happens to pass over our network, the same is true there.

So, VDEP is one means, but it's a broader concept that we do take very seriously..

Okay, thank you..

I just want to clarify, if I wasn't clear earlier, that when we talked about our full-year mid-teens, that does envision the possibility that we might not be buyers of our stock in the fourth quarter..

Jamie, next question?.

Our next questions comes from Jason from Jefferies. Your line is now open..

Thanks, guys. Just a clarification and a question. Clarification is just on the revenue guidance for the year. Is there any minor tweak up here at all, because I know you're still saying kind of low-double digits, but I think you had been saying the low end of low-double digits previously? I'm not sure if I heard that same language on today's call.

Or is the only change in the revenue outlook just the extra half point of currency headwind?.

Yeah, we were sort of rounding down to 2% last quarter. We're rounding up to 2.5%. So, the currency effect is -- has been growing through the year. I think the only thing we would say is the third quarter came in clearly better than we expected, because currency volatilities were higher. The incentive piece moved some into the fourth quarter.

So, I think, as we said earlier, incentive levels both in dollar and rate terms, percent terms, will be higher in the fourth quarter. So, we said last time that we would expect revenue to approach double-digits in the fourth quarter, and that is still our best estimate for the fourth quarter..

Okay. And then just a clarification is on the incentive adjustments in certain geographies that I think you mentioned is one of the reasons why the incentive line came in lower than expected.

What exactly was that? Did some issuers have to pay back some incentives to Visa?.

No, it's a couple of situations that varies depending on the geography. Volumes don't come in as expected, so they don't earn the incentives that we or they might have expected, so it hits you both on the gross revenue line and the net revenue line and on the incentive line.

And then in a particular few situations, there are unique things in contracts that are resolved within the quarter. .

It's also just flat-out timing of when things get signed. Remember, when we -- that's a little bit of -- I like to talk about this internally.

Just we have to do budgets and we give you guidance, but we really don't know as we look out in the future what the timing of our clients are going to be, and how different negotiations will actually take place. So, when we come to an agreement with a client, it then needs to be documented. The processes and the timing is usually driven by them.

Very often they need to go through their own approvals and it's very, very easy for these things to slip by weeks or even a month, if not more, depending on how far out we're looking and so, that's just a very natural thing that happens, which is hard for us to predict and hard for us to control..

Yeah, in this quarter we had a few of those -- a few international banks that moved into the fourth quarter, and will get done in the fourth quarter and that's the timing issue..

Okay, thank you..

Our next question comes from Bryan Keane from Deutsche Bank. Your line is now open..

Hi, guys.

Vasant, I just wanted to ask -- can you help us quantify the impact price changes had on the quarter, and maybe what percentage of the price changes have showed up in the third, and do we expect the full impact in the fourth?.

Yeah, as I told you last time, there will be some modest additional impact in the fourth quarter. One of the price changes and that was coming in with a little bit of a lag, so there will be a modest -- it's a small uptick in price impact.

But yeah, I don't think we specifically quantified the price impact in total, but it hits two lines, the service revenue line and the international line.

And it's those two prices increases we took -- just to remind everybody, it's the increase in the US acquirer service fee on all credit products, which went up by two basis points, and the international service assessment fee, which increased 40 bps for transactions in US dollars and 80 bps for transactions not in US dollars.

And there will be a little more impact in the fourth quarter than there was in the third..

Okay, helpful. Just one quick one.

Will the intangibles associated if there is an acquisition of Visa Europe will be amortized or will it be long-lived?.

Well, that is getting very far ahead of things right now. If there is a transaction, if and when, and once the details are clear, we can talk about all that..

All right, super. Thanks, guys..

Next question?.

Our next question comes from Glenn Greene, I’m sorry, from Oppenheimer. Your line is now open..

Thank you. Just wanted to go back to the incentives conversation. Obviously it was lower than I think most of us thought in the quarter, and it sounded like it was timing.

Does some of that timing kind of bleed into next year and I don't know, Vasant, if you're trying to call out that incentives as a percentage of gross revenue increase going into FY16? Just to clarify, did you have incentives meaningful for Costco, or does that kind of happen when the volumes come on?.

Yeah, I think it's too early to give you any particular point of view on 2016. We'll do that when we talk to you in October and we'll also talk about Costco and its impact on 2016 and so on.

As it stands today, the incentives -- the deals we were thinking we would get done this year are still looks -- still look like they're going to get done this year. So, we'll probably see the full-year impact of them next year, but it doesn't seem like any of them are moving into next year at this point..

The only thing I would add is just on Costco for a second is Costco -- the impact to us of Costco is next year for us fiscally. So, that’s -- whether it's incentives, whether it's volume, revenue associated with it, that's when you'll see the impact of Costco.

And then the other thing I would add is, because we've -- those of you that have been covering us for a long time know this, we do view our incentives going up as a good thing. Incentives go up when we're driving more business through the system and so, that wouldn't be a surprise to us..

Okay, great. Thanks for the clarification..

Next question, Jamie?.

Our next question comes from Kevin from Macquarie. Your line is now open..

Great, thank you.

I wonder, is there any type of sensitivity to think about relative to the FX volatility, in terms of a certain band of volatility, how it impacts the revenue because obviously, you've seen a nice pick-up and not to get '16 specific, but just any band in terms of how it impacts that revenue?.

Yes, I mean there's two dimensions here. And in this quarter, you probably saw both dimensions at play.

One, I believe there's publicly available information on currency volatilities and different metrics you can look at, so at least you can get a relative sense of how currency volatility is doing versus last year or prior quarter, or on a multi-year basis and so on, and it's been high.

The other thing that also had an impact on this quarter was the year-over-year comparison. This was a quarter, where not only were volatilities high in this quarter this year, but they were unusually low or lower than they've been recently in the third quarter of last year.

So we sort of benefited from both things, when you look at a year-over-year comparison. But you can look at external data to track some of this..

Next question?.

Next question comes from Ken Bruce of Bank of America Merrill Lynch. Your line is now open..

Thank you. Good evening. My question relates to the co-brand partnerships and just general issuing partnerships. It's really is independent of any one. But I guess if you could step back and look at there's been a lot of discussion about the increasing competitiveness on some of these deals.

I'm hoping you might be willing to share some observations from your position at the table as to how the balance of power, if you will, is shifting -- if there's any clear direction of who's kind of capturing more of the economics, or just how things have evolved over the last couple of years?.

Sure. Listen, I think it's a -- co-brands are certainly a very competitive part of the business, especially here in the United States. We've been lucky enough to have a significant number of the large and successful ones.

And so when you're the big incumbent and they come up for renewal, they're always on your mind, and you're very tuned to what's going on in the competitive environment.

But just as we talk about on the issuer side, people ask about well, is the issuer side getting more competitive in terms of the way networks think about it? And I think the reality is since we've gone public, there's been an extraordinary amount of competition between us and our competitors on these deals.

And you see that competition embedded in the numbers that we've all been printing for years now. So the answer is yes, you see it in the co-brand space. But I also think that the co-brand business and the issuing side of the business, there has been more concentration that has developed.

The other thing, which I think is becoming quite important now, is with the evolving nature of payments and things that are going on, whether it's issuers or co-brands, I think what we wind up seeing is that our clients are making very significant strategic decisions at this point relative to who they want their payments partner to be.

They're not talking about this as a commodity. They're not talking about just network services is something you need to look at in terms of just what the price is.

They're sitting there saying payments is an important part of my business, whether I'm a co-brand partner, because these are my most important clients; or on the issuing side, where they say payments is core to what I do.

I need someone that's going to help me navigate and be successful in this brave new world of digital commerce and evolving payments that we live in, and I need to pick the very best partner to do that.

We're thrilled with the success that we've had -- not just with Costco, but Southwest as you've seen, is a terrific partner, and other conversations that we have ongoing. So the answer is yes, financially they are competitive. Again, we've seen that. That's to be expected. But there are two parts to the conversation..

Next question, Jamie?.

Our next question comes from James Schneider from Goldman Sachs. Your line is now open..

Good afternoon, and thanks for taking my question.

Charlie, I was wondering if you could give us any more color on China in terms of -- and understanding that it's still early days and you have limited visibility -- but do you have any sense in terms of the restrictions you might be subject to when you do eventually enter that market? And if not, can you give us any kind of road map for when you expect to see greater clarity on those rules?.

So on the first piece the answer is no. What has been published is helpful relative to what we need to do in order to do the work to apply for licenses to start establishing the functions that have to reside in China. So those have been very, very helpful.

Relative to how regulations evolve, and what the actual business would look like in China, that's a ways off. We do not have a tremendous amount of clarity on that yet.

And I'm sorry, what was the second part of the question?.

The timing for when you get more clarity?.

I don't know. No one knows. We live here in the United States and so we know our own system quite well, and we never know what timing looks like in this country. Listen, but listen, I think they -- the Chinese government has been -- the state council issued its decision. They've come out with some more information, which is certainly helpful.

At this point, we've got -- we have plenty of information to do the work that we need to do to be in a position to apply for a license and to do the work. And honestly, that's what we're focused on.

I mean, there's a lot of work for us to do, both to make the application, but also be in a position to be able to operate, if we're lucky enough to be issued one of those licenses. And that's what we're focused on. As I've said, when we talk about this being a long-term opportunity, it's for some of these reasons you point out.

We don't know exactly what the regulatory climate will ultimately be. We don't know exactly the role we will play until we actually get there. But we do believe that there is great value for all the participants in the market place for us to be helpful. So we feel very good about what we can do in the country, and what it means for us in the long-term.

But again, it will likely be long term and not short term..

Next question, Jamie?.

Our next question comes from Mr. Huang from JPMorgan. Your line is now open..

Great, thanks. Good quarter here. I want to ask on the delta from your reported 12% revenue growth and the 6% to 7% you expected. Can you break it down for us by component what each driver was, in terms of how big it was? I heard FX volatility, lower incentives.

Did pricing stick maybe better than expected -- things like that?.

No, I would say you got them.

Volatility is, normally going into a quarter we don't assume that volatilities will stay at sort of the high levels they were last quarter because we assume things may settle down a bit, which they actually might in the fourth quarter, given things are settling down in Greece, and settling down in China and places like that.

So it was the spread revenues from volatility. It was somewhat lower incentives. It was offset by exchange rates. So you got all the factors. The pricing didn't have an impact relative to what our expectations were. It was as we expected. So, I think you've said it..

Okay. [indiscernible] the FX volatility and how big that was? Also separately on OpEx, were there any one timers that drove up the OpEx, or was that really just personnel? Thanks for taking the questions..

Yes on the OpEx, as we said, I mean, the year is progressing better than we might have expected, and so we made some adjustments as we normally do this time of the year in accruals for incentive compensation, that would probably be the single-biggest item that shows up in the expense growth.

Other than that, the only thing I said in my comments was that we had exchange rate impacts of up to three points. And fortunately, the currency volatilities here are levels that offset a significant portion of that..

Offset. Okay, both of that. Got it. Thanks so much..

Jamie, at this point we have time for one more question..

Our last question will be coming from David from Buckingham Research. Your line is now open..

Thanks. I have a two-part question.

Is there any update on the EU's efforts to regulate in-bound cross-border fees?.

There's no update.

Par two?.

Yes.

If you could just expand on what you said about US credit payments volume growth, and how much of the deceleration was Chase-conversion related, and what you're seeing in the way of discretionary spending relative to last quarter?.

Really no change whatsoever in terms of what we are seeing. There's a big impact on debit from the gas pricing, because I think three to one people use debit cards rather than credit cards. And yes the Chase conversion will continue to moderate, and will mostly be gone, I think, after the next quarter or so.

That will mean that our credit payment volumes will reflect whatever the gas impact is. And the gas impact will also begin to moderate as we lap it. But in terms of how people are deploying their savings from gas, there really hasn't been any change. I think Charlie referred to that in his comments. So the US consumer remains okay, not great..

Well, thank you all very much for joining us today. If anybody has any follow-up, feel free to call Investor Relations. Thanks, again..

Thanks, everyone..

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