Jack Carsky – Head-Global Investor Relations Al Kelly – Chief Executive Officer Vasant Prabhu – Chief Financial Officer.

Bob Napoli – William Blair Ramsey El-Assal – Jefferies Lisa Ellis – Bernstein David Togut – Evercore Andrew Jeffrey – SunTrust Darrin Peller – Barclays Sanjay Sakhrani – KBW George Mihalos – Cowen Tien-Tsin Huang – J.P. Morgan Craig Maurer – Autonomous Bryan Keane – Deutsche Bank Glenn Greene – Oppenheimer Chris Donat – Sandler O’Neill.

Welcome to Visa’s Fiscal Second Quarter 2017 Earnings Conference Call. All participants are in 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 call over to your host, Mr. Jack Carsky, Head of Global Investor Relations.

Mr. Carsky, you may begin..

Thanks, Christine. Good afternoon, everyone, and welcome to Visa, Inc.’s fiscal second quarter 2017 earnings conference call. Joining us today are Al Kelly, Visa’s CEO; and Vasant Prabhu, Visa’s Chief Financial Officer.

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 be archived on our site for 90 days. A PowerPoint deck containing the financial and statistical highlights of today’s call have been posted to our IR website.

Let me also remind you this presentation may include forward-looking statements. These statements aren’t guarantees of future performance, and our actual results could materially differ as a result of a variety of factors.

Additional information concerning those factors is available on our most recent reports on Forms 10-K and Q, which you can find on the SEC’s website and in the Investor Relations section of Visa’s website.

For historical non-GAAP pro forma related financial information disclosed in this call, 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. And with that, I’ll turn the call over to Al..

Jack, thank you, and good afternoon to everyone and thanks for joining us today. We’re halfway through our fiscal year for 2017 and we’re quite pleased with the strong business results that continued into the second quarter.

Similar to Q1, our business momentum was broad based with solid payment volume growth, a double-digit increase in cross-border revenue and healthy operating metrics from all of the regions. Despite geo-political uncertainty, our business continues to deliver sustained growth as we displace cash and capitalize on the opportunities in front of us.

We’re performing well against our operating plan and our strategic priorities for the year. I’m excited to see a high level of business execution continuing into this fiscal second quarter where we saw robust growth in payments, volume, cross-border business and processed transactions.

This growth combined with client incentive delays led to better than expected financial performance. We grew net revenue by 23% and adjusted EPS by 27% versus prior year’s results. We also reorganized some of our legal entities including Visa Europe and created the Visa Foundation with an initial charitable contribution.

This provides us an opportunity as a company to expand our charitable giving and our philanthropic activity. Vasant will go into this in a greater detail to highlight some of the normalized comparisons and also discuss the impact of the reorganization and the charitable contribution.

We continue to work closely with our valued clients around the world. Well I do not plan to talk about renewals on every call. This was a particularly active quarter, so I do want to highlight some notable agreements. In North America, we renewed a multi-year credit, debit, commercial and prepaid partnership with PNC Financial Services Group.

We also renewed a multi-year debit agreement with Citizens Bank and multi-year credit and debit agreements with First National Bank of Omaha. And on the co-brand side, we renewed an important credit card relationship of Hyatt Hotels and Resorts. In Asia Pacific, we signed a ten year exclusive partnership with ANZ Bank.

In both Australia and New Zealand, we also signed a commercial credit partnership with Citibank covering multiple markets in Asia Pacific. In Taiwan, we signed a multi-year credit and debit agreement with CTBC Bank Taiwan.

In our Latin America region, Banco Popular de Puerto Rico, the largest bank in credit card issuer in Puerto Rico renewed a multi-year credit and debit partnership. In Europe, we signed a PAN-Nordic debit renewal with Nordea Bank and a commercial and consumer card renewal with BNP Paribas Group in France.

In addition to our renewals, we signed a number of key partnerships. We announced the IBM Watson partnership to help support payments in the Internet of Things and encourage the usage of tokenization. As a leading network, it is part of our role to look forward and anticipate.

To that end and where applicable we want to ensure an on ramp for payments integration in the Internet of Things. This collaboration brings the point of sale everywhere Visa is accepted by allowing businesses to quickly introduce secure experiences for any connected device.

We also executed the PayPal partnership in Asia Pacific, which is similar to our partnership in the United States. This partnership helps ensure transaction data sharing and provides consumer choice for an improved consumer experience.

More recently, we announced the launch of an enhanced transaction data capability for Amazon business customers in the United States. This enables participating issuers to provide their U.S.

commercial account holders a comprehensive view of their Amazon business purchases including full line item details on purchases made with their Visa commercial card that integrate with popular reconciliation tools. Our digital expansion effort showed great progress in Q2.

Visa Checkout is sustaining tremendous growth, reaching more than 20 million enrolled accounts. Additional brand merchants are adopting Visa Checkout to improve their online shopping experience. And the growing list of over 300,000 merchants now includes Alaska Airlines, Avis, Marriott and Walmart amongst others.

And our push payments products at Visa Direct and mVisa are continuing to expand globally in various markets. This past quarter, I continue to spend a lot of time with clients, partners and government officials.

Combined with my travel in my first few weeks, I’ve had an opportunity now to visit most of our top markets and I plan to get to additional markets in the coming weeks and months. During almost all the visits I’ve balanced my time between meetings with investors, employees, clients both issuer and merchant clients and government officials.

I thought it might be helpful to share a few overall and a few specific impressions from these meetings. In terms of overall impressions, the Visa brand and our reputation with our clients is very good. Clients appreciate the association with our people and our incredible brand.

Regulation is present almost everywhere although it clearly differs from market to market. I validated what I already knew that the payment space is a local business driven by history, traditions and local regulations.

The state of innovation, issuer relationships and acceptance penetration are specific to each individual country, so you must be local to win in the payment space. And my final observation is that opportunity abounds around the world. More specifically, let me highlight some of our ongoing efforts in a number of countries.

In Russia, we have a very good presence and enjoy terrific relationships with an impressive set of bank partners both state owned as well as private. As a developed economy, Russia is growing domestically and in outbound travel, which contributes significantly to our cross-border business growth.

Where Russia has a domestic processor and a domestic scheme in New Year, the government understands the value of other networks and we are working well with the government’s central bank as well as our issuer partners.

Russia is also building excitement for the upcoming Confederations Cup this year and the FIFA World Cup in 2018, which represent opportunities for growth in this market. China as I said before is a long-term opportunity. It’s an important market and we will be patient.

I recently enjoyed meeting a number of key influential people during my trip to Beijing. They were very helpful. That said it will take time to apply for and pass the various review steps before we obtain a domestic license. We are working on a path forward, which I discussed with key people and we received helpful feedback.

Beyond the pursuit of a domestic license, the phasing out of the dual branded cards has begun to impact us in terms of payment volume and revenue and we expect to feel this impact a bit more as we look ahead. Turning to Japan, I’m very excited about the opportunities.

Japan today is a huge cash society with a large number of credit cards, but a small number of debit cards. I had a chance to meet with over thirty clients and the enthusiasm was very high.

I really believe that Japan will take off over the next few years driven by a positive and an active government in terms of driving payments to be more electronic or digital, growth in contact list and the emergence of e-commerce.

The Olympics in 2020 will be a great showcase for digital progress as the games are largely going to be in and around the city of Tokyo. In India, we’re working with partners and government agencies to expand our presence.

Post demonetization in November, domestic process transaction continues to grow significantly and was up well over 100% this past quarter. Today cash availability has largely returned to normal levels. Our transactions primarily come from domestic debit in low-ticket non-discretionary categories as we’re driving debit awareness.

We’re also scaling up physical and digital acceptance through bank partnerships and new product introduction. Points of acceptance have increased 50% in the five months since demonetization and is now above two million. Looking at the European business, we’re gratified with the overall performance.

Our acquisition of Visa Europe has provided our business with a truly global presence as we operate as one Visa worldwide. While we still have a lot of work ahead of us we’re pleased with the business integration progress to date. We are in active discussions with our clients as we migrate to new commercial frameworks with incentive structures.

The vast majority of payments volume continues to be under contract. We’re also in the process of building a strong and stable European leadership team. Following the recent resignation of Visa Europe, CEO Nicolas Huss, Bill Sheedy has taken on the interim CEO role as of April 1st.

Bill is a 25 year veteran of Visa and is well known to the European team given his role in the acquisition and early integration. Bill provides invaluable leadership in business continuity as we integrate the European operations and while the form of search process is underway.

We continue to work with our clients and partners to deliver on our innovation agenda in Europe and create new products, services and business opportunities. This past quarter, we met a number of successful contactless transit launches in the U.K.

and Italy and Visa Token Service continues to expand with recent Android Pay launches in Poland and Ireland. In February, we launched the Visa Innovation Center in London and so our strong client engagement with over 50 client sessions held onsite to date and a significant pipeline of demand ahead of us.

We maintained our strong record of accomplishment of delivering value to our shareholders through a disciplined capital allocation plan. We continue to make investments in our core business. We invested in our merchant service offerings by completing the cargo commerce transaction in February.

The 3-D Secure 2.0 standard and detection provides greater fraud protection and will increase approval authorizations in a channel that has historically had high or a higher level of denials.

In fiscal Q2, we delivered on our commitment to driving shareholder value as we returned over $2 billion of capital to shareholders consisting of 1.7 billion of share repurchases and nearly 400 million through dividends. We continue to accelerate our share buyback activity to offset the equity dilution from the Visa Europe transaction.

Lastly at Tuesday’s board meeting, we received approval to increase our share buyback authorization by $5 billion resulting in a total purchase authorization of $7.2 billion. As we move to the second half of our fiscal year, we feel good about the momentum in the business and look forward to the future ahead.

I’ve enjoyed the opportunity to meet with many of our shareholders over the past months and I hope to meet more of you in the coming months. As a reminder our Investor Day will be held on June 22nd in San Francisco, so I hope you will be able to join us. And with that let me turn it over to Vasant to cover some of the financial details..

2 weeks do not make a trend in the first half – then first half of April is impacted by the shift in Easter. A quick review of our fiscal second quarter financial results. Service revenue grew 17% in line with first quarter growth rates.

Service revenue growth was helped by previously announced price increases offset by a negative currency translation impact. Data processing revenues grew 25%, international revenues grew 41% impacted by lower revenues from currency volatility. Currency volatility declined through the quarter and is currently below the long-term mean.

Once again client incentives came in well below our expectations. As I mentioned earlier, lower than expected incentives added $0.03 to our second quarter EPS. Many significant renewals were completed in the quarter as Al described which will drive incentives higher going forward. Several important renewals have shifted to the second half.

In Europe, we continue to work with clients to reset our terms post-renewal of rebates. We are comfortable with the progress, but given the large volume of contracts that have to be modified. This will extend into the second half.

In the U.S., a couple of renewals, we’ve previously estimated might be done by now will likely be second half events, mostly driven by client timetables. Expenses grew 24% after adjusting for the Visa Foundation contribution, which is recorded in G&A.

As expected, expense growth ramped up from the first quarter level and will continue to ramp as we step up marketing and technology spend as well as Europe integration costs.

Personnel expenses are impacted by above-normal employee incentive accruals tied to better than expected year-to-date performance and several employees benefit costs that are seasonally higher in the second quarter.

Our tax rate adjusted for special items was 28.6% as a result of the completion of the Visa Europe reorganization, driving EPS of $0.86, up 27% on an adjusted basis.

Looking ahead to the second half of fiscal year 2017, as you have seen, the key drivers of our results payment volumes, process transactions and cross-border volumes continued to grow at healthy rates all through the first half. The main headwinds this year have been the strong dollar and the weak euro.

Fortunately, the dollar and the euro were relatively stable last quarter, and this headwind has not become stiffer. A couple of trends are worse than we had expected last quarter and bear watching. Currency volatility is tracking below the long-term mean and well below last year’s levels.

Volumes on Chinese dual-branded cards are declining as cards expire and are not reissued. On the second half, we are assuming payment volume and cross-border growth momentum will be sustained. Client incentives spend is expected to ramp up with the renewals we just completed and deals that are shifting into the second half.

Expenses will also step up above second quarter levels as we spend more on marketing and technology initiatives and as well as Europe integration. Based on first half results and current trends, we’re updating several components of our full year fiscal 2017 outlook.

We now expect nominal net revenue growth to come in at the high end of our outlook range of 16% to 18%, with client incentives as a percent of gross revenue at the low-end of the 20.5%, 21.5% range. There is no change in margin expectations in the mid 60s.

As a result of our Visa Europe reorganization, our tax rate after adjusting for special items is expected to be 50 bps or basis points better at approximately 30%. Nominal adjusted EPS growth also adjusted for special items is now projected to be at the high-end of the mid-teens range. With that I will turn this back to Jack..

Thanks, Vasant. Christine, it’s time. We are ready to take questions..

Thank you. [Operator Instructions] And our first question comes from Bob Napoli from William Blair. Line is now open..

Now, thank you and good afternoon. So this is the second quarter in a row where the company has materially exceeded expectations. What this – I mean, there’s a lot going on.

What are the main surprises to Visa on the outperformance? Is it Visa Europe is a lot more accretive than what you thought? Is it a somewhat better economy, more market share? What is driving the upside surprises?.

Bob, it’s Al. I would say number one, it’s fairly healthy economies around the world where [indiscernible] in every quarter get fortunate where – when you look across the globe, you see fairly robust growth and that’s what we had seen. I think I had said in the first quarter that we saw that with the exception of Brazil.

Brazil was not terrific, but that are in the second quarter. I think the second thing is the fact that we saw more of the client incentives that we expected to happen in the second quarter are going to move to later in the year. So those will be the two things I’d point out. And then of course, cross-border growth has continued to stay very robust.

As you saw, we’ve had now three quarters in a row where cross-border has been in the double-digit range especially strong has been U.S. cross-border, both issued and the acquired holding up pretty well. And that, as you know, is a good business for us. So again it’s strength of global economies..

Great, thank you. I appreciate it..

Thanks, Bob. Next question, Christine..

Next question is from Ramsey El-Assal from Jefferies. Line is now open..

Thanks for my question. The lower 2017 incentives guidance, as you mentioned, is pushing forward some renewals that you thought were going to happen earlier in the year. Is there an implication that you’re pushing out into 2018 things that would have occurred in 2017, because you’re taking down the total 2017 number.

And then I guess do you have any greater clarity on the potential effects of FASB rule changes on revenue recognition coming into effect next year, how that might impact this revenue – this incentive line?.

Well, on the first point, we do our best to try to estimate these client incentives. We’re in essence having to estimate 3 different things.

One is the timing of when deals are going to happen; number two, what are going to be the terms of those deals once they’re finally negotiated; and then number three, what are – once those deals are taking place, what – the actual volume performance is going to be. So it’s relatively tricky stuff.

That said, I think not only did we see some of the renewals we expected to happen in Q2 dip into Q – into the second half of the year. The other point is the one that Vasant made in his prepared remarks about the rebates being replaced by incentives in Europe.

It’s just – there’s a lot of accounts, and it’s simply taking us longer to get through all of the various work getting through the clients getting negotiated, getting through lawyers on both sides just playing it simple, taking longer than we thought. I’ll let Vasant deal with this FASB question..

Yeah, on the FASB side, yes, there are new revenue recognition standards. I think you’ve heard us say that there’s no real economic impact from it. We are working to clarify how those standards are applying to us. We are working through what that impact on us might be. There are two possible places in which there could be changes in the reporting.

One is what is classified under client incentives versus what is classified under expenses, and then how certain kinds of payments are amortized on client incentive contracts. Once again, as we go through that and we get clarity from the SEC and the FASB on a couple of open items, they will be able to do all the work and give you some sense of it.

But at this stage, that’s where things stand..

Got it. All right, thanks a lot..

Next question, please..

And our next question is from Lisa Ellis from Bernstein. Line is now open..

Hi, good afternoon guys.

Can you comment a bit on your view on the impact of PSD2 regulations in Europe and more broadly the regulatory environment in Europe?.

Well, Lisa, I think you know it’s a little early to tell how exactly the PSD2 is going to play out. We’re obviously engaged in talking to the regulators, talking to our clients and obviously having our own internal discussions about how things could play out.

We’ve been working with the regulators to make sure that the authentication process is done in a – with some pragmatic elements on it in terms of where you need – where you can use normal kind of risk authorization tools and techniques versus having two different forms of authentication, but where exactly it plays out is too early – I think it’s a little too early to tell.

As relates to balance the regulation in Europe, we’re continuing to make sure that we’re complying properly with the breakup of scheme and processor. It’s being perfectly blunt about it. It’s a bit of a cultural challenge and that we’re being forced to separate people and organizations that were accustomed for years to working together.

But we’re obviously doing everything that we need to do to make sure we comply. And then broader regulation around the world, we’re tracking very carefully.

Probably the most relevant recent news came out of Argentina, where they have regulated interchange effective now at a 200 bps for credit, 100 bps for debit, but it will slide down over the next five years and land at 130 credit and 60 on debit..

Terrific, thanks.

And if you don’t mind me asking just the same question, but for India, can you give a little more color on exactly what’s going on the ground? In India decisions being made with the government with the central bank et cetera around how the payment system is going to evolve there?.

Well, we would have expected sometime over the last couple of weeks to have gotten clarity. There was supposed to be clarity no later than the end of March on kind of the next chapter of regulation or guidance in terms of how things would have to go forward. And there hasn’t been, and we’ve been told that it will be delayed likely into early May.

So we’re right now continuing to make sure that we put as much emphasis as we can on growing the number of acceptance points throughout India, both kind of a traditional POS as well as using mVisa side and QR codes. And we made tremendous progress with merchant acceptance point up 50% in the country from November 8th until the end of the quarter.

And it’s still obviously very small compared to what it could be and will be relative to the population of India, but it certainly is a very healthy start from where we were in November.

So we’ll know more in May, but we’re operating now under the pricing that’s exists out there, which is 75 basis points, 40 basis points and 30 basis points depending upon the size of the transaction..

Thank you..

Terrific, thank you..

And our next question is from David Togut from Evercore. Line is now open..

Thank you. Good afternoon.

How do your revenue growth expectations for Visa Europe compared now versus the time you acquired the business at the end of June? And in particular are there any countries you are more or less optimistic about from a growth standpoint?.

Well I mean as we told you before we are very happy with how Visa Europe has come along post the closing of the acquisition in June. In general it is tracking at or above our expectations whether it’s revenue or accretion.

Cross-border business certainly has been strong in Europe, payment volumes have been somewhat higher than where they were around the time when we closed on the acquisition. Our yields have been heading in the right direction most of the expense actions relating to consultation process are completed they are now working on the technology integration.

So on all fronts Visa Europe is performing pretty much at or above our expectations..

On the second party of your question, where there is pockets of good potential? Our largest markets are the UK and France, and I think we look at Germany, Italy, the Nordic countries and Spain where we have a pretty good business already as well. A deadly place where I would highlight is where we think there’s specific potential.

But I think we feel very good about the potential in many markets across the continent..

Thanks you..

Next question..

And next question is from Andrew Jeffrey form SunTrust. Your line is now open..

Hi, thank you for taking the question. Actually a follow-up on David’s question, with regard to Europe Al could you elaborate a little bit on the timing of some of the yield and expense initiatives in Europe. .It sounds like we’re going to start to see maybe even a little more of an impact in the second half of 2017 and extensively into 2018.

So I’m just wondering if you can get order of magnitude maybe?.

Well I think on the expense side we’re about two thirds of the way through what we want to do. On the revenue side we’re probably a little bit behind where we had hoped to be a taking a bit longer than we had hoped to kind of work our way through the deals that have to be reconstituted.

We got some very good momentum going now, so I’m certainly hoping that the pace is going to pick up here in the third quarter and into the into the fourth quarter. But obviously if we bring on a good amount of those deals in Q3 and Q4 it’s going to create a good run rate for us going into fiscal 2018..

On the expense side, I mean the next set of actions is all around the technology integration. So the first thing that has to happen is technology platforms have to be harmonized. And then we can act on what we do with the technology infrastructure. And that would be, as we told you couple of years out.

And on the on the client incentive side, as we get these new deals done, certainly that is one of the reasons why the expected higher rate of client incentives in the second half as this pipeline of rebates and client incentives adjustments make their way through and get done..

Thank you. And our next question is from Darrin Peller from Barclays. Your line is now open. .

Thanks guys. Research Division with personal growth still a little higher than we thought, you still had strong margins, I think turning it about 68% for the first half.

So just first what would drive the margin to the low end of 60% range I guess average out in the mid 60s for the year? And then Al can you just tell us how you conceptually think about the company’s margin plans I guess I don’t guide in just for mid-60s, but just again as a CEO now, should we assume your strategy is to let operating leverage pass through up above 70% over the years to come or is there a different approach?.

Well I think that – I’ll answer the second half of your question first and I’ll let Vasant talk about the first part of your question. Well we’re going to – my view is that to the degree that we have good opportunities to invest in future growth whether that’s organic or acquisitions, we’re going to do that.

And that’s going to be the first use of capital always for us. And from my vantage point if that means that for a period we’re investing a little bit of our margin to promote growth because we think we’ve got an abundance of good ideas. We’re going to go ahead and do that.

That said it is a high leverage business in the next 1,000, 10,000 transactions we don’t really add much cost until we reach a point we got to hang another server up in our data center and we got a cost associated with that. We have very strong operating leverage in the business.

And so to the degree that revenue continue to grow, the reality is that and the revenue has grown higher than our expenses because of our leverage the margin would naturally run up. But that doesn’t mean we’re just going to sit by idly and have that happen.

What ends up happening is going to be a result of decisions we make relative to the investment opportunities that are presented in front of us around the world..

In terms of a question on near term margins, your first question, just a few things I just want to point out that I had in the prepared remarks. One is that you saw that our expense is ramping.

And that ramp is partially in personnel expenses, but also as we get to the second half there is going to be a further ramp in our marketing and our technology based on some programs that’s second half based. In addition to that the Visa Europe integration costs are also ramping. So there’s a set of costs that are ramping in the second half.

And then the second item is client incentives have been lower than the expected. We still believe that they will be in the range we gave you earlier although it’s more likely at the lower end of the range which is higher than where they have been in the first half.

So when you put that all together, it gives you a sense of where margins are likely to be in the second half..

Thank you..

Next question please..

Thank you. Next question is from Sanjay Sakhrani from KBW. Your line is now open..

Thanks I just had a follow-up on some of the emerging market discussions. Al, you mentioned your China visits and how the road might be a little bit more complicated to get the licensing.

Could you just talk a little bit more about the timeline you’re expecting and whether or not there’s other opportunities in that market to work with some of the players that are proliferating? And maybe just on India just to what monetization opportunity is? Thanks..

Well, on China I’m not going to talk about what we think might be the best path forward. It just became very clear to me as I talk to government officials, that even if at this moment, we had our ducks completely in a row and knew exactly how we wanted to proceed in terms of filing for domestic license it just is a very complicated review process.

And in fact not all of the necessary steps are actually memorialized. One of the things that I found out is that hopefully the Chinese government by the end of the second quarter is going to publish a set of more clarifying rules about international entities and what would be required to submit for a license.

So this is Sanjay, I think it has been communicated in the past. This is a long term play. But I think we have to be patient because this is in a country of 13 million or 130 million people, it’s almost 1.4 billion people and it’s just simply going to take time.

I think in the short to medium term, the reality is that the insistence, what’s an increasingly insistence on the part of the government for issuers to move away from the dual co-badge cards is in fact going to impact us in a negative way. It will impact us more meaningfully purchase volume, but we’re going to see some impact on revenue.

That said, we still expect that many of our partners are continuing to – as we know as come up instead of obviously renewing with dual-badge cards, they’re renewing card a CUP card and a Visa card to facilitate international travel.

So we still believe that cross-border traffic from Chinese citizens traveling outside of China will continue to be quite good. Turning to India, again, I think this is a longer-term play, but it’s a longer-term play that’s right now got real wind at its back.

And we’re investing and we’ve made it clear to our folks on the ground in India that we’re behind them and we’ll invest what’s necessary to take advantage of the wind at our backs right now. In terms of how big this is, I think there’s a number of things that we have to watch.

we’ll have to see where the actual pricing actually nets out when we get the final words from the regulators, so that it’s – make sure it’s attractive enough. We’ll have to see how the government in India continues or doesn’t continue to have this sustained push behind the efforts here.

But right now and until circumstances dictate that we should do otherwise we’re full steam ahead in trying to drive coverage, build awareness relative to mVisa and our app and trying to drive as many through marketing, drive as many Indian citizens into this world of using their mobile phone to transact for the purchases at least for their everyday goods and items..

Thank you..

Thank you. And our next question is from George Mihalos from Cowen. Your line is now open..

Great thanks for taking my question guys. Just wanted to build off of the last question as it pertains to China, and Al and Vasant, your comments around monitoring some of the China co-badge cards.

Can you size for us what the potential impact could be maybe in terms of volume, for example, something that could be at risk? And then second question, Vasant, I just want to make sure on the tax rate, I’m thinking about it correctly. For 2017, you’re talking about a 30% tax rate going to is it 29% in 2018? Thank you..

I’ll take the tax rate. I’m sure Al will add something on the cross-border side in China. On the tax rate I did say that we get a part year benefit from the reorganization we did in Europe, which is about 50 basis points this year. And we will get an additional 100 basis points on top of that next year with a full-year benefit of what we did.

As it relates to the dual-branded cards in China, we have incorporated that in our sort of thinking as we look ahead into the second half of the year. It is just something to be monitored. It is not that easy to predict.

But we are seeing that the payment volume on these cards is declining as they come up for renewal and they’re being renewed with, as Al said, the single currency card, which do then pick up some of the cross-border volume. I don’t know Al, if you want to add..

The only thing I wanted to add is it is difficult to tell. I mean the banks have been somewhat resistant to make this change, which has been a good thing for us. It’s just that there is a bit of a push on them more recently. And I heard that from a number of Chinese bank executives when I was over there. But how quickly it moves is hard to tell.

It’s also just hard to tell what we’ll happen with single Visa card issuance in essence a companion card to China Union Pay Card. And what does any impact that has on the cross-border volume which is, in many ways for us right now, the more important volume..

Thank you. And our next question is from Tien-Tsin Huang of J.P. Morgan. Your line is now open..

Hi thanks. Just a clarification a question, just the client incentives. Is the guidance revision all timing-related? Are terms perhaps better than expected? And then my other question was just on the reported U.S. debit volume. I think it shows 3%. Some of that you said steady 7%, adjusting for Interlink.

Just curious what’s the outlook here? I know it’s really complicated. Just trying to better understand what we could expect or see on the volume front and perhaps on revenue too with U.S. debit? Thanks..

I’ll take U.S. debit real quick. The adjustment as you know, the leap year has an impact on it. And so that’s one factor. Interlink, we have that lapping effect from something we – a significant win we had in the fourth quarter of 2015, that continues for I guess another couple of quarters.

In addition to that, we had a few a certain amount of volume going away from us. So that was an additional factor. And then there was a small impact from some effects in February around delayed tax refunds going to people. So debit was in general a little softer this quarter than credit was. There’s an ongoing shift in from credit to debit in the U.S.

market. That’s been going on for a while. So that’s a range of factors, other than that, things have been pretty stable in the debit market..

And as it relates to incentives, I would say that it’s primarily timing, because most of the impact is on deals that are not done yet. So the terms are still not fully set, and obviously the volumes haven’t started to take hold. it truly is kind of the $0.03 impact of timing that Vasant referenced in his remarks. .

Thank you. Next is from Craig Maurer of Autonomous. Your line is now open..

Yes hi thanks. I’m sorry to go back to it, but I just want a clarification on the China co-badged card piece. As I understand, the co-badged card when it was used domestically, was picked up by CUP and when used in cross-border or was picked up by Visa.

So in terms of the volume loss, are you saying that UnionPay is capturing some share from you in cross-border volume. Once the cards are reissued separately and that’s why you are seeing slowdown in purchase volume.

And the second question is now that we’re about 6 months in, have you seen material success in your initiatives with PayPal to move ACA to over to Visa cards. Thanks..

So dual-branded card can be used within China, and it can be used outside China. It’s CUP that processes the transaction in China. It’s Visa that processes transactions outside China. When you we use the dual-branded card, if the cross-border – if the new CUP card that’s issued is used outside China, then we would lose the transaction.

But we’ve working very hard with our issuers to have them issue the so-called single currency card, which as Al described as companion card, which we would like Chinese travelers to use when they leave China. And when they do that, we pick up that cross-border transaction too, but it’s hard to know how much of that will stay with us.

As it relates to the domestic volumes, there’s a small amount of revenue we make on domestic volume. When we lose that domestic volume when the cards no longer are dual branded and usable in China, we lose a small amount of revenue..

And on PayPal..

I’m sorry what was the question on PayPal?.

If you’ve seen material success in the six months since signing the deal and moving volume from ACH onto Visa cards..

Definitely, they lived up to the spirit of what we want, and it’s a process that we’re going through. But we feel good about the early days, and it’s a ramp over time, and we’ll see. But we feel good that we’re ramping in the right direction..

Thank you..

Thank you. Next question is from Bryan Keane from Deutsche Bank. Your line is now open..

Yes hi guys. Just a couple of clarifications. Just on the personnel costs, they are up a lot. I think it was 33%. That was up after – up more than the 14% in the first quarter. But I just want to make sure I understand exactly what that was. It sounds like maybe it was employee bonus accruals due to good performance.

That’s still a significantly higher number. So I’m trying to figure out that number, what it was? And does that continue at that rate going forward? And just on the clarification on the second point on client incentives, does the pushout impact fiscal 2018? Or is it the pushout that impacts second half 2017? Thanks..

So I’ll take the personnel costs and the other one too. On the personal costs, yes, client – I mean, incentive accruals were higher based on performance. And that there’s a certain amount of catchup you have to do when you make adjustments for the entire first half. So that’s a big component of it. There’s always some pluses and minuses there.

Certain FICA related costs start hitting you in the first calendar quarter of every year. Of course, our first – our second fiscal quarter is the first calendar quarter. So there’s an element of seasonality as well as increase in some of those costs. So it’s one big item which is incentive accruals and a variety of other smaller items.

But in general, we told you that our costs will ramp through the year as certain costs pick up through the year. And some of that is built into what you saw in the second quarter, and some of that will continue.

And incentive accruals will stay higher through the back half of the year too, based on what our performance has been, assuming it stays at levels we’ve had. The other question was…. .

That was regarding the client..

[Indiscernible] look, it’s early to tell. You make assumptions on what’s going to happen. And clearly, some things are already looking like they’ll be in 2018, which we have factored into our thinking. But if you could more move into 2018? It’s too early to tell..

Okay, thanks so much..

Thank you. Next is from Glenn Greene of Oppenheimer. Your line is now open..

Thanks, good afternoon. Just two questions quickly. Maybe for Vasant, I know you’ve talked about the recontracting of the Europe deals, and that was part of the reason for the timing of the incentives.

But more broadly, can you tell us sort of what proportion of the European volumes have been contracted or remain to be recontracted? And then another question that’s not the same, but on pricing, how much of a pricing benefit did you recognize or see directionally in the quarter of that 25% of gross revenue? And did you see a full quarter impact on that pricing?.

Yes I don’t know if your second question is also about Europe. But as you’ve said, as we’ve said, I mean we indicated a while ago that we don’t really talk about pricing actions we’ve taken in any particular market. We sometimes talk about U.S. pricing actions because they are fairly visible to everyone.

So we really – but those of you talk to people in Europe will get a sense of what is going on in that market. So from a price standpoint, there have been some actions taken and our yields our, we think, headed in a direction that you expect it to have them go. So that was as it relates to pricing.

In terms of the process of replacing rebates with incentives, as we’ve said several times, there are contracts in place, and these volumes are under contract.

What we’re trying to do is to make sure that these contracts are commercially competitive in a world where the issuers with whom these contracts have been done prior to the sale of Visa Europe when they were owners of Visa Europe, are still competitive. Because when they were owners of Visa Europe, are still competitive.

Because when they were owners, they got a payment called rebates, which was more of an ownership payment. As those payments go away, we want to make sure that Visa commercial arrangements from a commercial standing remain competitive, so that when they come up for renewal, we have competitive pricing. So the contracts are in place.

It’s really the commercial terms that are being modified..

Yes, that’s really what I was asking.

I was just trying, where are you in that, moving all these arrangements to commercial arrangements?.

I think that we’re in process. I think I said earlier, we’re a little bit further behind than we thought we might be. But put it simply when you go get to each of these clients, have the discussions that are usually multiple discussions, and then getting it lawyered up, et cetera is taking a little bit longer than we thought.

And so we still have a good amount of work ahead of us in the second half of the year. And that’s why there’s the impact that we talked about on clients incentives move timing being kind of what our estimate is of the $0.03..

Christine at this time we have time for one last question..

Okay, and our last question is from Chris Donat from Sandler O’Neill. Your line is now open..

Thanks for taking my question. Vasant, at the risk of annoying you with one more question on incentives, and think about 2018, is the safest place to start about our assumptions of what 2018 incentive ratio will be, the midpoint of the 2017 guidance? Because it was more like 19% for the first half of the fiscal year.

It looks like it would be like 23% for the back half. And I know it’s impossible to predict it accurately. We don’t know all the terms. But anyway, I’m just thinking is the midpoint of a full year for this year a reasonable place to start for next year..

Well it’s too early for us to give you anything precise about next year. As you know, these things are best talked about in ranges.

But we’ve given you our best sense of what the range is likely to be this year and I believe that gives sense of what the range is likely to be this year and I believe Jack has told me that the ranges we’ve given in the past, while one quarter or another, we may be below the range, perhaps one of these quarters will be above the range.

We generally end up being in the range for the year. And that’s our best sense of where the current range is for client incentives as a percent of gross revenues. Beyond that, it’s too early to talk about 2018. We can tell you more about it as we get closer to the end of the year. .

Understood..

Thanks Chris. Thank you all for joining us today. If anybody has additional follow-up questions feel free to give myself or Joon or Victoria a call. Thanks again for joining..

And that concludes today’s conference. Thank you for your participation. You may now disconnect..