Welcome to Visa Inc's Fiscal Q1 2013 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'd now like to turn the conference over to your host, Mr. Jack Carsky, Head of Global Investor Relations. Mr. Carsky, you may begin.

Thanks, Brad. Good afternoon and welcome to Visa Inc’s fiscal first quarter 2013 earnings conference call. With us today are Charles W. Scharf, Visa’s Chief Executive Officer; and Byron Pollitt, Visa’s Chief Financial Officer. This call is currently being webcast over the Internet. It can be accessed on the Investor Relations section of our website at investor.visa.com. The replay of the webcast will also be archived on our site for 30 days. A PowerPoint deck containing 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 within the meaning of the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements are not guarantees of future performance. And as a result of a variety of factors, actual results could differ materially from such statements. Additional information concerning those factors is available in the Company's filings with the SEC, which can be accessed through the SEC's website and the Investor Relations section of the Visa website. For historical non-GAAP or pro forma related financial information disclosed in this call, the related GAAP measures and other information required by Regulation G of the SEC are available on the financial and statistical summary accompanying our fiscal first quarter earnings press release. This release can also be accessed through the IR section of our website. And with that, I’ll turn the call over to Charlie.

Thank you, Jack. Very well said. I just want to start by letting everyone know how excited I’m to be part of Visa. After 10 years as some combination of an issue or a member of the Board, its great to be part of a team that I’ve known for 10 years or so. And especially Byron and his team, whom I’m going to embarrass him a little bit, he is even more impressive from inside the Company than he was from outside the Company as well as the team. I do feel lucky to be part of what clearly is a growth Company and a growth industry. These times are exciting. We got some great competition out there, both from traditional players and from new players. But as I’m going to talk a little bit here in the call, we love our position. Well first, we’re going to go through the quarter, which as you saw was very, very strong. And then even more importantly, I think once we go beyond that I’m going to talk a little bit more about our continued strong investment in the future of the Company. And it's our confidence in that you can see is exhibited by the additional share repurchase authorization that’s in today’s announcement. So Byron, going to walk through the quarter and then I’ll come back and give you some more detail thoughts and leave plenty time for Q&A at the end.

Thank you, Charlie. As its my practice, I'll begin with some observations and callouts. First, Visa’s 12% net revenue growth in the fiscal first quarter was once again broad based as we continue to see strong credit and debit growth in the U.S. and the Rest of World, as well as a return to positive growth in our worldwide debit business. Second, client incentives for the quarter. As a percentage of growths revenue, we’re 16.3% and below our full-year guidance. This was a result of both lower than expected deal activity in the quarter and timing issues associated with incentives to certain clients. We expect these payments to be realized in the coming quarters. Third, aggregate U.S. debit payment volume posted a negative 4% growth rate in the fiscal first quarter of 2013 versus a negative 6% in the fiscal fourth quarter of 2012. Of note, Q1 Interlink payment volume growth was off 44% versus 48% in the September ending quarter. Fourth, Visa’s effective tax rate of 28.2% was positively impacted by a tax benefit recognized during the quarter as a result of new guidance issued by the State of California regarding apportionment rules. As a result we booked a credit of $76 million after tax representing about a $0.11 of EPS, which resulted in a significantly reduced tax rate for the quarter. This catch-up benefit is consistent with our full-year tax and EPS guidance. Fifth, in wake of receiving preliminary court approval of the merchant litigation settlement agreement in December, we made a $4 billion cash payment from Visa's litigation escrow account to the Class Plaintiffs' settlement fund. This was in addition to $350 million paid out in October to the individual merchants. The net result of these payments will be to increase our free cash flow by about…

Thanks a lot Byron. I thought maybe what I would do being new to the Company is start by just talking about my view of the Company, the way I think about it, and then move into priorities. And I guess, I’d frame my thoughts on the Company by starting off with the fact that having been here for three months and been around the world spending time with people here, I am more bullish today about the opportunities that we have than the day I joined. And I think that’s true about the short-term and the long-term, and let me just go through some reasons why. First of all, as you all know the resiliency of the business model really is something pretty special. Everyone is aware of the global economic environment, the conditions that we have been working through. The important thing for us is that we continue to have the ability to deliver through the economic cycle. Second of all, and I wouldn’t underestimate this issue which is that, there’s a clear desire and a need for our product both socially and economically. And when you travel around the world it comes through loud and clear. Our products help economies grow and they help people of all wealth levels, as well as merchants and governments of all sizes. And again especially once you leave the United States as you talk to the governments, as you talk to merchant’s that is the message that we get loud and clear. And then we also can’t forget about this huge number of 2.5 billion people across the world that don’t have access to the formal financial system today. And our products that we offer can bring them into it. It really is something overtime that will improve their lives and…

(Operator Instructions) Our first question will come from Jason Kupferberg from Jefferies. Your line is open. Jason Kupferberg - Jefferies & Co.: Thanks and Charlie welcome abroad. I appreciate all the comments. Just wanted to pick up on one of the things you said in terms of Visa potentially becoming a little bit less rules oriented going forward. And I think you kind of elaborate on there and how soon we might see this? And then Byron, if you can just give us a quick clarification on the tax rate issue. It sounds like what you’re saying is that you guys already had anticipated this tax benefit when you give the 30% to 32% full-year tax rate guidance and the high-teen VPS guidance for last quarter is that accurate?

Why don’t I start on the tax rate, that’s correct, your tax rate is always comprised of components. This was a component that the timing of which uncertain. But this type of component was contemplated and as a result it’s fully consistent with the guidance we gave at the end of last quarter.

And Jason I will take the question on flexibility. I think – the way to think about that one is – again, if you go around and you talk to issuers across the globe and if you talk to merchants and if you ask what is the negative quality of these, hopefully after they go the long list of positives, they will talk about that we’re not as flexible as we could be, we got lots and lots of rules. And so what that means is they tend to get nervous that we can just change rules. They’re not sure about how that might impact them in the future. And our goal should be that we got rules that protect the integrity and the value of our payments network. That’s why they were put in place to begin with and they’ve just grown over a period of time. So, what we have to do is – as the Company evolves it has become much more commercial figure, define the rules as those things that are quote ‘who we’re’ and the protection of the value of our networks I described and then move other things into commercial arrangements that you would have with customers.

Our next question will come from Craig Maurer of CLSA. Your line is open.

Hi, and let me add my congratulations on your first quarter with Visa. You talked earlier about the importance of a global network, but Visa is a separate entity from V.me – I’m sorry, from Visa Europe, V.me well. Anyway Visa Europe and I wanted your thoughts on how long-term Visa Europe plays into the global strategy?

Our next question will come from Glenn Fodor of Autonomous Research. Your line is open.

Hi, good evening. Charlie, I look forward to working with you. I’m just trying to get my hands around what Visa’s strategy might look like as technology changes the industry; and Charlie how far do you think Visa might stray from it's historical role if exclusively a network in the middle, and by this I mean, developing more consumer facing initiatives like V.me. And then how would you reconcile this strategy with those of your constituent partners who often times are pursuing these same strategies so there could be some, your competitive or brand conflict there? Thank you.

Yeah. We’re here to support the customers of our issuers and acquirers. That’s the way we think about it. That’s the way things are built here and that’s the way things will continue to be build. So, something like V.me, we're building V.me on behalf of our customers. If you go use V.me, you will have to register for it so that your information gets in there. But from that point forward, it is completely supportive of our banks. When you pay for something using V.me, we have the ability to show the card art exactly as it exists in someone's wallet today. So, V.me is not meant to be direct to consumer to go around our issuers, it's actually just the opposite. It's meant to support them with the electronic wallet that will enable them to continue to grow commerce. So as we think about – I want to talk about extending who we are, we love the business that we're in. Presumably, you all love the business that we're in which is why we trade the way we do. And so we're very mindful of that. And the opportunities for us to continue to figure out how to use technology whether it's our own or whether it's other peoples, to feed that network and to use our assets is what we're focused on.

Our next question will come from Dan Perlin of RBC. Your line is open.

Thanks. So I just want to return to this issue of capital allocation and I know that you said there's not much of a change. But I was thinking more in terms of the first priority is always back into the business and I heard you mention in your kind of prepared remarks around priorities and others, outside the U.S. a number of times. So I'm wondering if you could just shed some light without being too specific, I suspect on kind of how we should be thinking about capital redeployment through this geographic mix that you guys have? Thank you.

I'll start. So I would say the first call on the growth in our capital is going to be software development that underpins our new products in mobile, V.me or right on the point of the sphere with that. That would support products that were to be deployed both in the United States and in rest of world and the development of those products, the actual incurring of the capital would also actually occur both in the United States and outside. As you build additional product capability and extension of the services we offer, that will also require investment in infrastructure. Now just the capacity to house, to operate and to process, but also new challenges like security. So VisaNet very, very formidable battletested defenses as you start moving into products that are going to start operating as an extension outside of VisaNet, but it requires additional investment in technologies in order to properly secure. And so that is the primary source of hard dollar capital. And then as Charlie mentioned, we still have an enormous runway of growth in our base business. So we are adding offices, we are expanding, we are putting more people on the ground. We are at our best when we have people deployed in country giving personalized, tailored service to our clients, banks, acquirers, merchants. And so that reinvestment will not just be capital expenditure, it will also be operating expense with an immediate return in the core business.

Let me just add to what Byron said. If you just look at relative levels and just get my own view coming in from the outside is there's a lot of investment that's going on here. You see it in the expense line. You see it in the initiatives. You see – I mean you don't get to [work] with something like V.me without putting the resources into it or being able to be in the market with mobile, without having used the capital on something like Fundamo and whatnot. So, there is a significant level of investment going on with what you see and it still allows us to do what we've done with the dividend and with the repurchase program here. So, we feel like there's just plenty of room for all of those things.

Our next question will come from Rod Bourgeois of Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: Great. Charlie, so with your experience on the bank side, are there tangible steps for you to make – to help Visa improve its relationship with the banks, particularly the large banks. For instance, as you push new products like V.me, you need the large banks on board, and so far it’s unclear to what extent the largest banks are fully supportive at this point. It’s helpful to hear that 12 of the top 25 banks are signed up for V.me, but that could imply that 13 of 25 are not signed up at least at this point; and so that’s one example. But on that example and Visa’s general relationship with large banks, are there tangible steps to take to better engage with the banks? Thanks.

Yeah, I guess, let me answer it a couple of ways. I mean, to just – listen, we can always improve relationships, so that’s – I mean, but I will come back to that. I said 12 with the top 25; we have four of the top 10, who are already signed up for it. And again, when you say large banks, the Bank of America is a great partner of ours. PNC is a great partner of ours. U.S. Bank is a great partner of ours. TD Bank is great partner, I mean, I can go on through the names. We have a great list of partners that are currently signed up for it. I spent a bunch of time myself talking to the biggest banks in this country, but just so you know I don't spend all my time thinking about the biggest banks in this country, the big banks here are important, but so are the regional banks, so are the credit unions, so are the community banks, just as the banks overseas. So, I just want to be clear about that. But listen, we have – you go through the relationships that we have with the big U.S. banks and it’s hard to say you trade our position with anyone’s in the marketplace. And is that something we have to earn every day? Absolutely. Are things like V.me, things that actually solidify those relationships? Absolutely. There is a lot more that we’re doing working in partnership with banks of all sizes to create that partnership orientation away from a vendor orientation. We view it as something that it's not a god given right, we got to earn it every day. But again just to end where I started is we’ve got relationships with these banks. We don't take them for granted, but like anything else, we work – we come in everyday to figure out how do we make them better?

Our next question is from Tien-Tsin Huang of J.P. Morgan. Your line is open.

Hey, great. Thanks, Charlie. Welcome to the call. Just thinking about your initiatives being more flexible partnering and customizing. I’m curious, to accomplish this do you foresee more investments required to get there or that was in place? And I also wanted to ask just about, your comment about working closer with the merchants. I know Visa has been moving closer to the merchant for some time and given your background from the issuer side. How much closer can Visa get to the merchant before you, I guess, complicate the issue of relationship, if you follow up question?

Let me do that one first. I’m not at all worried, did I say worried, I always worry to the extent of, we all should be careful and clear. So, just assume that’s the case. But in my conversations with issuers, we all agree because they’re in the exact same spot. And I speak as much from where I came from as where I am, that we all need to do a better job of working with merchants. Our customers are merchants and acquirers. We’ve got that. We understand that. But ultimately there’s someone who uses the payment product, and there’s someone that accepts the payment product. And if the person that accepts the payment product is not particularly happy, that’s not a good thing for us. And that’s not a good thing for the issuers either. So, we are in total alignment on changing the nature of those relationships where they’re wanted. And it's something that we do -- that we’re working on in partnership with them, as well as partnership with the acquirers. We've had very open conversations with the acquirers about that. I was just with them, with all the big acquirers this past weekend, and they’re totally supportive of it. So, I’m not -- again assuming that we do this openly, the right kind of way. I think we’re all in this together. And your first – the first part of the question.

Yeah, Charles I’ll take the first one. So, the first question I think Tien-Tsin was more about in our effort to be -- have more tailored and flexible client relationships, do we expect this -- is that going to cost more in terms of capital? And I would say, at the current point in time, the big capital is in creating the products and in the capabilities that allow you to operate and leverage a large network, and that today, is there expense involved in tailoring? Yes. But we don’t have line of sight to larger expense. And a good example of that would be our strategy of recognizing, as Charlie said earlier, that the single largest open to buy on the planet is the Visa cardholder's access through our network. Hence, part of our strategy is to build products that can be accessed through our network with common stacked APIs that make it very easy for users or our clients to hook into the network. So, in the spirit of how we're expending our capital, I would say over the next several years its past is much more a representative of prologue.

Our next question comes from Chris Brendler of Stiefel Nicolaus. Your line is open. Christopher Brendler - Stiefel Nicolaus & Company Inc., Research Division: Hi. Thanks. Good afternoon. I wondered if you could just give us any color on the progress you're making with Interlink, any sense of how much success you're having with PAVD and actually getting transactions routed over that signature Visa Network on the debit side, as well as any update there may be on the FANF fee? And then maybe for Charlie along with the FANF fee, is there anything in that comment you made about being closer to the merchant and working with the merchant that would make future implementations of fees like this go a little more smoothly? Thanks.

Let me take that one to start to on Interlink. If you go back to the third fiscal quarter of 2012, that was the quarter April 1, was when the dual network Durbin requirement became effective that was high tide in terms of Interlink payment volume loss. So, our growth rate in that third quarter was minus 54. If you then move to the fourth quarter, so that's the fourth fiscal September ending quarter, the growth rate for Interlink was minus 48. If you then move to Q1, so the December ending quarter, were minus 44. And so these -- clearly, we're going to have one other kind of major quarter of transaction loss through Interlink, because it takes four quarters to lap the Durbin effect, but you can see 54, 48, 44, there is progress. Having said that, there is going to be -- as we said all along, there is going to be a significant permanent transaction loss as a result of the Durbin regulations. And so while we would expect to continue to make some progress, there is no way we're going to get back to where we were before. And then as I had mentioned in my remarks, once we get into that third fiscal quarter, then the growth rate picture should start looking very different with regards to our debit business, because we're now lapping Durbin. With regards to PAVD, PAVD is up and operating. It's important to note that a transaction that is a PAVD transaction actually shows up in our Visa debit payment volume not Interlink. And so PAVD is up and operating. You should think about it at best contributing very modestly to our payment volume growth in U.S. debit. And with regards to FANF, and remember FANF is one part of a much more comprehensive fee restructuring, which was combined with a lowering of our per transaction cost, in addition to the introduction of merchant incentives to encourage routing, which is still on the upward ramp. FANF has now been in place since the April quarter. And so far it seems to be going well. Charlie, do you want to add anything?

I guess the only thing I'd add is, listen, I think it's unfair and it's hard to try and stick yourself into the position of someone else when you're going through what this company was going through. And so, I have not personally sat and gone through exactly what happened, what was the thought, what were the options, I mean all the things that you would do to answer your question directly, I haven't done because I'm looking at the future here. But as I said, I think as we -- and I think we're all in the same page internally on this one is just as we look forward which is the important thing here, I mean it's about balancing everyone's issues and it's balancing issuers, it's balancing those with merchants, with acquirers, with our own. And we're going to be very, very conscious of that. We're going to do the right thing whether it creates noise or not, but make sure that everyone's represented in that discussion before we make a decision.

Our next question will come from Don Fandetti of Citigroup. Your line is open.

Good evening. Charlie I was wondering if you could talk a little bit about how you view sort of the longer term threat from China UnionPay? And then maybe talk a bit about how you see the sort of opportunity in China playing out and what your approach will be to that market?

Sure. I was in China, I don’t know two or three weeks ago and had the opportunity to meet with a couple of senior members in the government with some of our big clients with China UnionPay and do some, and participate in some other activities that we’re involved in socially there. China is an interesting place for sure, we’re over there. We make money there and we have got some great partners there. The WTO ruling speaks for itself. Over time that market will evolve and will change and we feel like it’s important for us to be a good partner to people within the country to bring the benefits of Visa to China. In my conversations with people there, they want us there. They think we can add value not just because of the brand, but because of what our network is versus maybe what China UnionPay is today. And we’d hope over a period of time that we can work with China UnionPay in the context of the way the regulations exist today and as that market changes and evolves. We will figure out how we can do more inside that country, just as they look beyond that country as they develop. But again, I come back to what we have. Our network has been around for a long time. We’ve got 2 billion cards? That’s the number? 2 billion cards outstanding. The largest open-to-buy, the quality of the fraud tools, I mean, I can go on and on about what our network has, and if there is another competitor out there, so be it. Good competition is a good thing, not a bad thing.

Our next question will come from Andrew Jeffrey of SunTrust. Your line is open.

Hi. Thanks. I appreciate you taking the question. Charlie, when you think about investment in the business aside from products and so forth. How do you think about market share, I think particularly in the U.S. which is the most mature market in which you operate from an electronic payment standpoint; and should we consider an effort to bolster share both on credit and debit as a central component of the investments going forward as well?

Yeah. So listen, I said this before, which is, our number one opportunity is cash. So, we’re constantly -- the first thing we look at when we think about share is we think about the share of cash versus electronic payments. And it's our goal, it's our mission, it's what we do for a living is to move that number towards electronification. For all the reasons I talked about, it's just -- it's the right thing and it's a good thing for all the participants in the market place. And so, I know everyone likes to always ask questions, I mean, even my old job; they used to ask how you compete against the other competitors out there? We've got great competitors. They are doing some neat things. They are smart people. So, I think first and foremost given the market we’re in, there’s plenty of room for a bunch of us to be successful here. And so, that is -- the enemy first and foremost is cash. When you look at how we’re doing versus competitors; we looked pretty good; pretty happy with it.

Our next question will come from Tim Willi of Wells Fargo.

Tim, if you’re there; you’re on mute. Can’t hear you.

Sorry about that. Thanks for pointing that out. Can you hear me now?

Yes.

Yeah. So, on the regulatory front, as you’ve traveled the world, it sounds like over the last several months. Could you give us your thoughts on what kind of regulatory and political environment that you have to navigate; how you think that would impact the economics of your emerging market growth versus how your economics look in the more established markets and if you’ve been pleasantly surprised or find out to be more challenging as you assess what you’ve heard over the last couple of months globally?

Yeah, I would say -- first of all, it's very different in different parts of the world. And so, you obviously know about the U.S, you’ve read about Canada, you know about Australia presumably, and really is different depending on where you are. Again, I alluded to this in lots of my remarks when we started, but I was really positively taken aback by the desire for government officials to want us to be in the market committed to helping electronify their payments. It doesn't mean that they're not concerned about interchange or they're not concerned about figuring out what they want in country versus not. I mean different countries have different points of view on that. But they want us to be a participant. They see the value in that. And again, this is not -- this wasn't me going around the world trying to sell our services. This was me going to meet people and as part of that, the clear message to me was we want you here. And when you're in that kind of situation, that's a pretty good place to be in. Byron, anything you want to add?

It is a wonderful dynamic. There are always two doors in the government. The first door is always open with an open invitation. You can't tax what you can't see. Hence, there's a very strong motivation for governments to be very interested engaged partners. And then I would say the other piece is our position and others when we get deeply involved in the electronification of payment, we become an important part of the monetary system or can be in a country. And that's why in virtually every major market we have government relations representatives, we engage early, we educate, we lay good groundwork so that these dialogues are constructive and increase the probability of a good reinforcing regulatory environment as we lay the foundation for growing in the domestic markets of these emerging markets.

Our next question is from Bob Napoli of William Blair. Your line is open. Robert Napoli - William Blair & Company L.L.C., Research Division: Thank you and welcome Charlie. Your bar is a lot higher than Joe's was. Your stock's trading at 21 times earnings, his was nowhere near that when he started. So, given that bar and given that this looks like such a great story even just why the valuation has done what it has, what do you view? What are you most worried about? What are the biggest risks? What can derail this train? Is it something like a PayPal offline and MCX, other countries like India, RuPay going the way of China UnionPay? What are you most worried about, what can derail this, what has been a great story so far?

So let me just go through a couple of thoughts. First of all, I would say focus, knowing -- being clear who our clients are and not isn't extremely important. We get a lot of pressure from a lot of people to use our assets to go do things and whatnot. And so my comments around knowing that our clients are the issuers and the acquirers is extremely important. We change the nature of those relationships. We put a lot of money in jeopardy at this place and potential future growth. Regulation and legislation clearly has been a big issue for the industry. We're very, very conscious of it. You can't be here and not be. Hopefully, some of the things I talked about when I talked about the priorities, over time with things that get to those issues, because ultimately if you've got the people who are participating in the payment system wanting to do business with you, as opposed to the opposite, then you don't get some of the pressures that you see. Again, competition is competition. I mean there's some great competition out there. I wouldn't trade our position with other people. It doesn't mean that we don't think about them, it doesn't mean that people don't do some really smart things, that we sit there and we say why them and not us, that's always the case in every business. But hopefully, they're sitting there and thinking more so of us. So, we spend a lot of time talking about both the traditional and the non-traditional people. So for sure we worry about it, but ultimately that one -- as sitting here today, we feel like we're in a good place.

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

Our final question will come from Bryan Keane of Deutsche Bank. Your line is open.

Hi, guys. I just wanted to follow-up on a couple of questions. I guess, Charlie, on the strategy, how do you feel about the risk of being dis-intermediated either through ACH or through another player especially as we move into more of a mobile world? And then secondly for Byron, just the rest of world payment volumes kind of spiked in the quarter. Just curious to know if that was supplemented by some new wins that pushed that number higher. Thanks so much.

Sure. On dis-intermediation I talk about competitors, traditional, non-traditional and that encompasses a wide range of people. So, again we think about it. We worry about it. What we hope people would look at over a period of time, and what we think people look at over a period of time is, our assets that we have here is really hard to build. It just is. The global connectivity, the acceptance that we have, the actual network the way I described it, and other people have other assets out there that they bring to the party. And, what we should be doing, and are doing, and will do more of is engaging with that community to figure out how they can get access to our network in a way which is friendly to our customers because, ultimately it doesn’t make sense for them to go build something that we already have. It doesn’t mean people won't try. It doesn’t mean they haven’t tried in the past. But again, I keep kind of saying this; it's up to us to prove to people why our asset is as good as we think. And that’s what we’ll continue to do.

And Bryan, on the international PV up-tick in this quarter, for reasons that are not -- that aren’t clear other than the tension that we had around China and Japan, and mostly in Asia Pacific around that impacted the Chinese, the Japanese, Korean cross-border travel as tensions over Island ownership spiked. And everything from the Senkakus to the Diaoyus to the Spratleys, there seemed to be a more broad-based malaise in that quarter. And the recovery, if I can call it that or the rebound was very broad-based. It's still down. And that – in that [pocket] of Asia where the – where that tension existed last quarter, but there’s been more of a broad-based uptick. So, it's not win specific, it's more a broad-based uptick. And remember for us, that’s the world excluding Europe.

And with that we’d like to thank everybody for joining us today. If you have any follow-up calls, feel free to give Investor Relations a call. Thanks everyone.

Thank you for your participation on today’s conference call. At this time, all parties may disconnect.