Al Kelly discusses the accelerating transformation of the digital economy, including the global middle class, financial inclusion, and the future of work.
The CEO Speaker Series is a unique forum for leading global CEOs to share their insights on issues at the center of commerce and foreign policy, and to discuss the changing role of business globally.
HUBBARD: Good afternoon, everybody. I’m pleased to convene this meeting. Welcome to the Council on Foreign Relations CEO Speakers Series with Al Kelly.
KELLY: Thanks, Glenn.
HUBBARD: He’s the CEO of Visa.
I’m Glenn Hubbard, the dean of Columbia Business School, and I’ll be presiding today.
It’s a real treat to get to talk with Al, who I’ve known for a very long time. And he sits at the intersection of a number of big issues in the global economy. We all know that globalization, technological change are leading both to a big expansion of the middle class in many parts of the world, but also challenges for the middle class in other parts of the world. Much of the world has significant challenges, as well, in financial inclusion. And in almost every industrial economy there are issues of skill gaps. Visa sits right at the center of that. It’s obviously a window on consumption, but it’s a technology company.
So, Al, let’s dive right in. What, in your view, is the current state of the digital economy?
KELLY: First of all, Glenn, it’s great to be with you. And thank you to everybody for being here.
The digital economy is dynamic, exciting, and growing. But if I use a baseball analogy since we’re early into the baseball season, it’s in its early innings. There’s still a tremendous amount of cash and checks used around the world. People have this view that cash is inexpensive. The fact is that if you talk to any retail banker, they’ll tell you that cash is extraordinarily expensive. You still have—in many of the biggest countries of the world you still have the digital penetration of PCE is very, very low. In fact, the lowest in the big countries is Nigeria, which—Nigeria is the seventh-biggest country in the world, and only 5 percent of PCE penetration is on digital electronic payments. On the other end of the spectrum, Australia is 89 percent. The average in the world is 48 percent. But if you look at, again, the biggest countries in the world, India, the second-biggest country in the world, is 27 percent; Indonesia, the fourth-biggest country in the world, is 27 percent; Russia, the ninth-biggest country in the world, is 32 percent; Japan, the eleventh-biggest country in the world, is 34 percent or so. So there’s very low penetration in many of the biggest countries in the world, so there’s lots and lots of opportunity geographically.
If you look at governments around the world, they are very mixed in terms of their engagement. Some are extremely encouraging of digital payments. A lot of countries’ presidents realize that digital payments help eliminate the gray economy and help bring transparency to spending, and therefore help in terms of collecting the proper level of taxes, et cetera. Other countries’ governments are very benign. You have the situation of something like what happened in India on November 8 of 2016, when they took 85 percent of the currency out of the market and kind of—India had, like, a very chaotic situation for about three weeks, but it was really a catalyst, and it really has changed India’s trajectory. Even though India is still very much still a cash society, the reality is that since November of 2016 we probably have a threefold increase in the number of places that can accept some form of payment—electronic or digital payment credential.
You still have—one of the other reasons it’s in the early innings, you still have by our estimates 1.7 billion people on the face of the earth who are outside of the financial mainstream. And you know, some of those are in Manhattan. Some of them are in other big cities in the United States. But many of them are in countries in South America and countries in Africa, countries in Asia. There’s tremendous opportunity to pull those people into the financial mainstream over time.
And then the last point I’d make about why we’re in the early innings and why this is still dynamic and growing is—got to do with women entrepreneurs. Women entrepreneurs are so underfunded around the world it’s a—it’s a horrible problem. Something like three-quarters of women-owned firms would say that they don’t get the capital they need. And it’s not a millions-of-dollars problem, it’s not a billions-of-dollars problem; you know, the estimate of the World Bank is that it’s a $1 ½ trillion problem.
So I look at it and say it’s—from the perspective of a company like Visa is that lots has happened and I could—I could sit here and tell you a lot of the great things that have happened and stories about why the digital economy has grown so much, but what’s exciting about it, as much as it has grown, it still is very, very early in the game and I think there’s a lot of upside as we look over time.
HUBBARD: And you think the payment-card business will be the key players in the digital payment transformation?
KELLY: Well, you know, the payment space—one of the great things about the payment space is I come to work every day thinking about how to grow the pie. You know, it’s very different; I started my career working at Pepsi, and there’s only a certain amount of people in the world who are going to drink sugared water. So when you work at Pepsi you come to work every day 100 percent focused on market share, and you say how can I get another inch on the shelf—on the shelf in a supermarket, how do I get one more person. But it’s not as if Pepsi or Coke is going to unearth in the next three months fifteen million people around the world who didn’t know anything about soda and now are going to start drinking it.
The payments ecosystem space is continuing to grow. There’s still $17 trillion spent on cash by consumers around the world and well over $25 trillion spent by businesses around the world that are still cash. And Visa is the biggest network in the world by far, and last year we did $11 trillion of total volume. About 8.3 trillion (dollars) of that was in people actually buying goods and services, and another 3 trillion (dollars) of it was in cash.
That said, Glenn, because it’s growing space, there’s lots of people interested in it. And I kind of have my days where I long for the pretty simple business with a few competitors and not a lot of other people involved. But the—lots and lots of fintechs have stepped into the space and are providing both—a combination of competition as well as some value-added types of services to the ecosystem. You know, there’s a whole move afoot by fintechs around the world to provide kind of the current-day version of installment loans at the point of sale, where when you go to buy something you can have the opportunity, whether it’s in ecommerce or in face to face, to actually extend payment for a few months rather than by spending—you know, spending the full amount of money right at the point of sale. So we face a whole set of new competitors around the world as well, and I think that—but that’s because the payments space is fun and interesting and growing.
HUBBARD: Well, you and I were talking about this before the program, too, that some parts of the world the playing field is not quite level, though. I mean, there’s competition and then there’s regulation. How do you navigate that in this?
KELLY: It’s tricky, Glenn. You know, the classic example, if you don’t know what’s happened in China in the last thirty months, it is nothing sort of amazing. The payments space is the kind of thing where, you know, if you—if you can move a couple of basis points of share in a relatively—you know, let’s say in a year, that’s a lot of movement. But in China, a combination of the government being asleep at the switch and two very aggressive companies—Tencent, which owns WeChat; and Alibaba, which owns a company called Alipay—they literally in twenty-eight months took twenty-five share points—not basis points; twenty-five share points—from the banks in China. And actually, one of the—still one of the scariest things I’ve heard from a regulator since I’ve been in this job—and I travel the world and I meet with—almost every country I go to I meet the central banker and have a conversation. And I asked a central banker in China about two years ago: Why is it that you’ve kind of allowed Alipay and WeChat to be banks but not regulate them like banks? And the regulator looked at me and hesitated, and then said: Well, Mr. Kelly, you know, about a year ago to a year-and-a-half ago they were way too small to worry about, and now they’re way too big to do anything about. (Laughter.)
So, now, that said, the People’s Bank of China in the last six months has started to bring the hammer down on both WeChat and Alipay. They’re making them hold capital that they never had to hold. They’re making them process. They are regulating their pricing a bit. So they’re starting to make their lives a little bit more difficult.
We worry about—you know, I can’t help people deciding to invest their money and enter as competitors to us, but the point I was making to Glenn earlier, it’s critical that we have an even playing field, right? Just recently back from a trip to China, Vietnam, and the Philippines, and met with Prime Minister Phuc in Vietnam, and we’ve had an ongoing issue in Vietnam where the government has been attempting to—the government started their own little switch or their own little processor, and they are insisting—they’ve been insisting that all transactions that used to run and be processed by Visa, MasterCard, or Amex now be on this domestic switch that the government has ownership position in. And you know, that’s not creating an even playing field. And I said to the prime minister, you know, we’ll pick up jobs and leave here. We’ve got—we do business in, you know, all but five countries around the world. I have to make choices about where I spend money. And if you’re going to do that to us, we’re going to have to make choices to go somewhere else. And in this particular case, the White House and particularly Secretaries Mnuchin and Ross have been really helpful to me, and we’ve gotten them to curtail this. And when I met with the prime minister he seemed quite interested in trying to get past this, so hopefully we’re making some progress and we’ll get there.
HUBBARD: You know, over the long term many people believe that technology certainly has the capacity to solve some of our biggest problems. But today, short term, what more should we be doing in this area? You mentioned financial inclusion. Are there other things?
KELLY: So interestingly enough one of the solutions that we’re doing around the world is like completely the lowest-tech you can imagine. We in a number of countries are literally giving a businesswoman or -man a piece of cardboard that has a QR code on it, and that’s all they need to become a digital payment accepter. And what we’re doing in those countries is we’re downloading a(n) app to consumers who go into that little shop and they buy three things. They total it up. They then, via the app, go read the QR code on the piece of cardboard and the money moves from their bank account, which is—they had previously loaded—when they loaded the app and set it up, they loaded in their bank account—and the money shoots from their bank account to the merchant’s bank account. It doesn’t require hardwire, telephony-based capability, which is the way the payments system has been working and wired for fifty years. So throughout Africa, India, and now increasingly in various countries in South America, we’re employing this QR capability.
We’re also, to a point you made, spending a lot of time on that 1.7 billion people that are outside the financial mainstream. You know if you don’t know any better, the idea that you’d go—you would take a—you know, a three-inch by one-and-a-half, two-inch piece of, you know, card or whatever it’s made of these days and trust that when you give goods and services out that you’ll actually get paid, you know, it seems foreign to us but it’s not foreign to many, many billions of people and the—and the—hundreds of millions of people in the world. And we’ve got to—the whole ecosystem of payments is based on trust, and we’ve got to go out and educate people.
On this trip when I went to Vietnam, I also spent four days in China. And we’re working with the Chinese government on—they’re trying to eliminate poverty in China by 2020, and a lot of their poverty is in the northeastern part of China, particularly amongst farmers and herders. And we’re doing a number of programs with various Chinese government entities and quasi-government entities to try to build the financial literacy of these farmers and herders. Even here in the United States we’ll do financial literacy programs in high schools, et cetera. So we’re trying to—
HUBBARD: How about members of Congress? (Laughter.)
KELLY: Well, that’s a good question. I spend a fair—spend a fair amount of time trying to educate them as well.
HUBBARD: Now, we talked earlier about some people being left behind in the digital transformation. This isn’t just a government policy issue. What is business’ role or Visa’s role or responsibility in particular to people left behind in the digital world?
KELLY: Well, I think we have a real responsibility. And, by the way, it is—not only do we, I think, have a real social responsibility, it actually is consistent with our business objectives as well. We’re very interested in helping lift as many people as we can. One of the things we’re doing—spending a lot of time on is talking to governments around the world about being leaders in their country to solve this.
So all government—all governments around the world have some forms of subsidy programs. Many of those subsidy programs are still done by handing out vouchers to people. So what we have been doing is working with governments to suggest that instead of vouchers they give people either—they move the funds to people either on debit cards or pre-paid cards, which by the way then forces a whole bunch of the economy that might only have taken cash and check to have to sign up to take—to accept plastic. And it actually helps the government realize how the funds are actually being used.
So I met with—six months ago with President Sisi in Cairo, and I guess I didn’t appreciate how poor a country Egypt is. It’s about—just about a hundred million people and about 60 percent live at or below the poverty line. And there’s about six or seven subsidy programs in Egypt, including a program where people get allocations of loaves of bread a week. But there are a number of programs where they get money, and he wants to turn all of those voucher programs for in essence about sixty million people into programs that are facilitated through debit or prepaid cards. And he realizes that will be a stimulant to help build the digital economy in Egypt, which will make Egypt a more interesting country to invest in, people will trust it more. It has a whole bunch of downstream benefits as well.
HUBBARD: If you go back to the real core of your business of staying relevant with technology for consumers and their spending, what do consumers really want? Is it ubiquity? Is it reliability? Is it security? And can they have all of it?
KELLY: Well, they want all of it, and I think they deserve all of it. I think that—the way I describe Visa is that I want Visa to be like air; that when I leave my house, whether I’m going to go for a walk down the street or I’m going on a business trip or I’m going overseas on vacation, that I feel—that I am confident that if I have my Visa card with me that I’m going to be able to use it anywhere I want to be able to use it. You know, I spent twenty-three years of my career at American Express, and our—it’s a great company and a great franchise and a great brand, but it didn’t have the ubiquity. And we at Visa strive to have the greatest ubiquity—I can use my card anywhere in the world. We strive for it to be reliable. So it’s one thing to be ubiquitous, but it’s got to work when I go to use it. And then the third element is when I use it it’s got to be secure. I’ve got to have confidence.
And the combination of ubiquity, reliability, and security is embodied in a five-letter word, “trust.” And trust is at the epicenter of the digital payments world and, in fact, of digital economies. You know, a series of data breaches or cybersecurity attacks or any of those kinds of things that would undermine the security and the trust of the—of the payment ecosystem would be extremely harmful to all the players in the system.
Consumers should expect all of that, and on top of that they should expect that not only is their data secure but their data is properly safeguarded from a privacy standpoint, and that it’s used in a way that they would expect and intend it to be used. And that’s, again, something that not just in payments, but every industry is dealing with because on one hand you hear from so many people that, you know, data is the new oil; on the other hand, if misused, it’s—you’re going to have a lot of oil spills. And so figuring out how to, I guess, deal with that aspiration of what data could be, but to do it in a way that’s sensitive and protective of consumers’ rights I think is a very tricky and very important issue.
HUBBARD: You mentioned earlier about developments in digital payments and the idea of moving much more beyond cash. What are the barriers you see today, whether it’s in the United States or around the world, in moving to a better digital payments system?
KELLY: Well, at the end of the day it’s a marketplace, right? You’ve got consumers and businesses buying from—goods and services from businesses. And again, we’re the biggest network in the world. We’ve got 3.3 billion payment credentials that are issued by sixteen thousand financial institutions around the world, so ranging from—our biggest client in the world is Chase to, you know, very, very small credit unions that issue payment credentials. And those payment credentials are usable at fifty-four million locations around the world.
I find both those numbers—3.3 billion and fifty-four million locations—as impressive as they are, to be grossly insufficient. There’s still tremendous upside to drive much more than 3.3 billion payment credentials, and there’s many, many, many places to build acceptance of cards. And I’ll use—I’ll just give a couple of examples.
So on the—on the—on the payment credential side, A, you’ve just got all—you’ve got these 1.7 billion people I’ve been talking about who aren’t in the financial mainstream. The other thing that’s going to happen is with the—as 5G emerges and the capability of that comes into play, it is going to be the fuel that will really drive the Internet of Things, and connected homes, connected cars, and connected offices. I mean, 5G is a hundred times faster than 4G. It’s going to provide the resolution that’s three times the resolution that you can get of watching a movie in an IMAX theater. It’s going to enable eight-way videoconferences among people. And it’s going to—it’s going to change the experience in driving cars and sitting in your homes, et cetera. I mean, you’re going to be buying—you’re going to be buying goods and services from your refrigerator. You’ll be buying things from your washing machine. And all of those—all of those become new locations. And that’s why, you know, we have said that we think there’s, you know, a tenfold possibility of increasing the number of those types of locations.
On the—on the—on the merchant side, there are still millions of small businesses around the world. We call them the long tail of businesses that still are just cash and check and don’t accept any form of plastic. I live up in Westchester when I’m not somewhere else—when I’m not on an airplane—and there’s a bakery that I love up there that’s only open on Fridays, Saturdays, and Sundays. I don’t know how they do it. They only take cash. That’s it. They won’t even take a check. They only take cash. And if you go—
HUBBARD: So they don’t have to pay taxes. That’s how they’re open half the week.
KELLY: Probably. (Laughter.) That’s how they’re open three days a week.
And then there’s the very high end. I have five children, four of whom are now through college, and you know, I would have loved to get all the points to pay my college tuitions using credit cards. And rent and all those kinds of things are space that’s really still dormant.
Even I’ll give you two crazy examples in the United States. There are a hundred and five million parking spaces in the United States, of which thirty-five million are on street and—where you have to pay. And we’ve got only about 25 percent penetration through kiosks and apps into those. Similarly, there’s seven million what we call unattended retail locations in the United States. Five-and-a-half million of those are food and beverage vending machines, and one-and-a-half million of them are washers and dryers in laundromats. And that number grew 25 percent last year, and again, we only have about 20 or 25 percent penetration of that. So there’s huge opportunity to grow both sides of this market, the number of people who are—who are buying and the number of locations where they can buy.
HUBBARD: Let me ask you this. We’ve talked a lot about many topics in the digital economy. Writ large, are you optimistic or pessimistic about where things are going? Since I’m an economist and you’re a CEO, I’m guessing I’m supposed to be the dour one and you’re the optimist.
HUBBARD: But I’ll let you—I’ll let you pick.
KELLY: You know, I’m bullish because I think the glass is half-full. And we—you know, we haven’t talked about—you look at countries like—there’s three countries on three different continents that are amongst the biggest economies in the world that are still heavily cash: Mexico to our south, Germany in Europe, and Japan in Asia. I mean, huge economies, and they’re still very, very much cash economies.
And you know, in Japan Prime Minister Abe is trying to use the Tokyo Olympics next August as a platform for trying to drive more digital. And we’re investing heavily in Japan right now in advance of the Olympics, where we also happen to be a—you know, a cornerstone sponsor. So we want the Tokyo Olympics to be successful, but more we want to have the prime minister be successful in driving lots and lots of usage.
You look at our business in South America, we still have more people going to ATM machines taking cash out to go shopping than we have people using cards to actually go shop. So there’s a tremendous opportunity. And obviously, economically it’s better for us if they’re actually shopping than taking money out of an ATM machine.
So I look around the world and say, based on geography, geographic opportunities, based on technological advances, based on governments getting increasingly interested in this space as a catalyst for various things that they’re trying to make happen in their country, I see it as us, again in the—in the early days—and I think—so therefore, I remain quite optimistic.
Look, on the other hand, you know, not to be a Debbie Downer here, but the reality is we’re nearing a record period of prosperity. And I don’t see any real signs of an issue or storm clouds out there, but you know, it’s somewhat—I think we’d be all naïve to think that, you know, over the—that this is going to continue for the next two, three, four, five years without some kind of downturn of some type. But again, I don’t see it in the numbers yet. Employment around the world looks very, very good, and growth around the world has been quite good.
HUBBARD: Yeah, let me—let me turn to that. This will be my last formal question, so that’s a cue for you to start thinking.
You are a window at Visa on consumption. And given all that you see in spend data and Visa data, where do you think the economy is? Now, I understand also that you’re near earnings season. I’m not asking you for super high-frequency information. Just in general as you look, what are you seeing?
KELLY: Make sure that our lawyers heard that Glenn said that. They’d be happy.
It’s been good. You know, Brazil—the big economies around the world, Brazil worried me a year ago but they’ve had—they’ve looked pretty good the last number of quarters.
We did see a blip in December. Think back to what was going on in December, though. The equity markets were terrible. You had a lot of Brexit stuff going on, although that drama has continued and continued. You had a lot more uncertainty then than maybe we do now, but who knows, around the U.S.-China trade talks. And then you had the stupidity of the government shutdown. And those four factors, in my opinion—and I said this to our folks before the numbers came out—I said, this can’t help but have put a dent in consumer confidence. And sure enough, the January consumer confidence and consumer sentiment numbers were not good.
And the other thing we saw—and I think it’s one of the measures I look at first when I see numbers every Friday or every month or every quarter—is what does what we call cross-border travel look like, meaning people actually leaving their country to go to another country. And I think it’s a big sign of how confident people are. And we actually saw—in December we saw that fall fairly precipitously from what it had been in the first three quarters of the year, and in fact from what it had been in the first two months of the fourth quarter. And I think that people were concerned and they just hunkered down and didn’t leave their countries, and that’s all over the world. It wasn’t just here in the U.S., although the U.S. dollar being as high as it’s been has certainly curtailed inbound travel to the U.S. And that’s been a factor because inbound travel to the U.S. is, obviously, important for the U.S. economy and therefore important for us as well.
HUBBARD: All right. I’m going to pivot now to invite members to join the conversation. A couple of quick reminders. This meeting is on the record. If you could wait for a microphone and speak into it. And then, if you could, please stand, state your name and affiliation. My only request is that a question is actually a question—that is, it has a question mark at the end of it—and that there’s just one of them at a time.
Q: David Braunschvig.
And I have a question for you regarding what keeps you awake at night. More specifically, with respect to cyberthreats, how do you see the interplay between what you do and the way you may react in the event of a major crisis, on one hand, and the way governments may intervene in ways that may or may not be consistent with your interests?
KELLY: Two good questions, David.
You know, the honest thing that I—the biggest thing I actually—that keeps me up at night is am I—what am I missing? You know, there are so many things going on in the world. We’re so global. And you know, because we’re so global there’s something happening every day, and I could get caught up in the—every day I could get caught up in the event of the day. I mean, just—I’ve been so worried about our employees in Venezuela over the last number of months. We’ve gotten most of them out of Venezuela. Most of them are working in Bogota now. But the conditions in Venezuela right now are horrendous. And as much as I care and I call down to those people, et cetera, I’ve got to make sure that I’m thinking about the whole world and things that are going on. And I worry about what am I missing. You know, what’s—might be in front of me that I’m not paying attention to.
Certainly, one of the things I worry about is cyber. If you ask me kind of what are the biggest challenges I worry about, cyber’s been on my list from the beginning of my time as CEO. We have—Glenn very rightly so—everybody calls us—a lot of people incorrectly call us a credit-card company. We are a B2B tech company. We have seventeen thousand employees; 45 percent of them work in technology. And we have 830 people who work in cybersecurity, and we spend hundreds of millions of dollars a year on cyber. It is something I’m maniacally focused on. I don’t say no to requests for cybersecurity investments.
In fact, a funny thing happened to me recently. I made that statement in a management meeting, that I don’t say no to cyber investments, and executive came to a budget meeting and had a mask made of the guy who’s in charge of cybersecurity and asked me for an investment. (Laughter.)
But it’s a—it’s an area we got to stay current on. But I—you know, I—you would know I’m not being truthful if I looked you in the eye and said, you know, we have it nailed. I worry about it all the time.
And there are challenges with the government—I mean, the governments. We have lots of interaction with law enforcement around the world. And you know, often the coordination’s good, but sometimes we have a really hard time getting the security clearances we need; they want information from us, but they’re not willing to give us information back at the same level. It clearly would be to everybody’s best interests if we were all exchanging information on a more current basis.
We run—we just are building out our third cyber fusion center. They’re twenty-four-hour operations that are looking at what’s going on around the world. And you know, we’re a target on so many fronts. There’s so many DoS attacks that we’ve dealt with over the last—I think eight thousand over the last twelve months. We last year averaged, in terms of spam emails, 123—the average—it was 754 million, which is 123 per day per employee at Visa, and it’s crazy—and all of which we stopped. But there could be better coordination.
There’s something going on in the world right now. It’s only happened once in the United States in the last six months, but there’s a phenomena called ATM bust-outs that’s happening around the world. And it’s happened to banks in Rwanda, Ghana, Pakistan, India, the United States, where it’s extraordinarily organized crime or state-sponsored, where what happens is people get—steal payment credentials, a lot of times through the most common way of doing it, which is unfortunately skimming. So, like, if you go to a restaurant, you lose your card for a few minutes while somebody takes it. Well, very easily somebody could—there’s a very simple little device they could put the card in, skim the information off that card, give it back to you, and they can go that—a waiter could do that twenty times in a night and have twenty sets of information, sell it to somebody, and they make twenty fictitious cards. You can also do it by just penetrating people’s systems.
Anyway, the—I’ll give you the example of one attack on a Pakistani bank. At the exact same minute—the exact same minute—in thirty-one countries human—what we refer to, not very nice term, but human, you know, people masquerading as legitimate go hit ATM machines at the exact same minute. And in this particular case, within twenty minutes took twenty million bucks because they just bang away at the machines. And in one case—we have velocity models, and in our—we actually picked up—it wasn’t this case—in another case we picked it up, and after like six minutes of this activity, and then we turned off—we turned off everybody from that bank so nobody could use an ATM card. And then we noticed like four minutes later it was turned back on, and that’s because the organized crime group had actually penetrated the systems of this bank and they were actually able to override our turndown.
And by the way, one of the biggest culprits that we know from talking to the FBI and Interpol and others—one of the biggest culprits of this activity is the North Korean government.
HUBBARD: Questions? Yes, sir.
Q: Charles Henderson, AIG.
From a consumer point of view, what do you see and what are your views on the movement for having retailers not accept any more cash and going to just credit-card acceptance?
KELLY: Well, we actually talk internally that Cash Inc. is our biggest competitor. You know, that said, I’m a believer in choice. You know, consumers should have choice. Consumers should be able to use whatever form of payment they want to use. And you know—provided it’s properly connected to a fiat currency, because somebody might ask me about crypto, and I do have concerns and issues about crypto. But if it’s—if it’s tied to a fiat currency, I think if they want to use cash they should use cash, use a check, whatever.
I think that it’s expensive for, you know, the—when you think about the cost of transporting, counting, storing cash, it’s very expensive to handle for the retailers, as well as the merchants, as well as the banks. But I don’t—as much as I think of Cash Inc. as my biggest competitor, I’m not somebody who wants to stand up and make a public statement that, you know, cash should be banished. And there’s plenty of use cases that we have a lot of work to do to figure it out. You know, I—what do you do tipping the bellmen in hotels around the world? If you play golf, what do you do—how do you pay the caddy? And there’s a whole bunch of cases where there really isn’t a good answer yet either.
So you know, I—obviously, we’re out every day trying to convince people to go digital. That said, I’m not ready to go so far as to say, you know, we should shoot cash.
HUBBARD: What was your reservation about crypto in that regard?
KELLY: A lot of people—well, first of all, I think that the fact that crypto isn’t kind of grounded in a fiat currency makes it very tricky. And a lot of our biggest—a lot of the biggest transactions are buy now, get your service later. So let’s take an example, you decide to take your significant other on a trip to Europe six months from now and you buy the ticket today with crypto, and bitcoin is at, you know, $20,000. And then, you know—and then it’s at $8,000 and, you know, somebody thinks they overpaid or underpaid. And you get in the middle of trying to adjudicate that it gets very, very tricky.
I also think that the vast, vast majority of consumers don’t understand crypto. In November and December of 2017, when bitcoin was hot—and at the beginning of that time, I think it was, like, twenty-seven thousand, and within sixty days it was under ten (thousand); it might have been six (thousand) or five thousand—we saw a tremendous—so much buying of crypto on Visa cards that when we actually reported earnings last quarter, we actually had to call out that one of the reasons volume was down was because we were growing over the crypto bubble of the year before.
But, interestingly enough, the average person was buying, like, two hundred U.S. dollars of bitcoin. So they were just speculating. And there were millions and millions of people doing it. I just don’t think it’s at a point yet where it’s consumer-friendly. And I think that people work really hard to make a living. And when they go to spend it, and especially if it’s on a product from Visa, I feel, you know, a real obligation that they’re—they could feel confident that their hard-earned dollars are being used properly. And I don’t want them and I don’t want us to be in the middle of, you know, a speculation game or some kind of FX or some kind of exchange game.
You know, if there’s a proper market for it at some point or it’s grounded in fiat currency, that’s a different story.
HUBBARD: In the back.
Q: Hi. Andreas Baumann from Partners Group.
I’d like to ask you about how you balance the potential to monetize all the data insights you have on 3.3 billion cardholders and, on the other side, like, fifty-some million businesses.
KELLY: Purchase, yeah.
Q: Right. How do you balance the potential to monetize that with the preservation of trust?
If we’re going to use it for—and if you opt into a loyalty program—for instance, we have a multi-country loyalty program with Uber where, if you use your Visa card as your card on file with Uber, that you’ll earn loyalty points as you go, so there you’ve opted in to participate in that program, and we’ll have some—in order to facilitate that program, we have to use some of your personal data.
Beyond that, it has to—we’ll only do aggregated, anonymized types of things. So, for instance, one of the things we’ll help big merchants with is where should they put their next store? They don’t have to know anything about who bought what, but we can use our data in an aggregated, anonymized fashion to help build models and do analysis that, you know, could help inform a retailer where they might put their next store.
So we’re trying to be very thoughtful and very, very careful about it. I think we have a real responsibility to handle data as well as and as carefully as we can. And we also have a policy that if we have PII data, personally identifiable information, and we don’t need it, we’ll get rid of it. We only want to keep what we absolutely have to keep. I don’t want to increase my exposure by keeping—even though I tend to be a bit of a rat pack myself personally, I don’t want to run my company that way. We’ll get rid of stuff we don’t need.
Q: Ricardo Tavares from TechPolis, California consulting company.
Fintech, as you mentioned, is the most dynamic area of venture capital now. You can say that venture capital is going where the money is. And how will you manage the disruption and threats in this area? So do you look at what’s happening to consider acquisitions? Do you try to replicate internally? How do you do it?
KELLY: First of all, I would say that we—if you asked me this question 15 months ago, I would say we’re doing it pretty poorly. I think that we weren’t organized and as thoughtful as we needed to be. In the last year, we’ve completely gotten our act together.
So, first of all, philosophically I run the company on the basis that we should talk to anybody, anywhere, about anything, that we should never declare somebody as an enemy; we should always have the view that somebody could be positive and a value-added partner to us. And only after kicking the tires and talking to people and deciding, you know what, they really do want to kill us, then maybe we’ll change our view. But my philosophy is we ought to be open and talk to anybody.
We were too bureaucratic with fintechs. We were applying the same set of rules to them that we were applying to more traditional players in terms of if they were new, what kind of collateral they needed and that kind of thing. And now we have built fast-track onboarding programs for fintechs. And we have a very—we operate the company in five regions around the world, and each of the five regions has a fintech onboarding team now. We have a ventures group that I meet with once a month that looks at making investments in fintechs.
We’ve made quite a few investments in fintechs. We’re not an investment company. We only invest when we feel like we—we’ll only invest if we have a commercial agreement with the fintech player and that commercial—the fintech player wants us to invest. We’re not just—we’re not investors, but if that’s what they want us to do, we will do. So we’ve got several—dozens of investments. And we made a commitment in a speech that our head of—our CEO in Europe made a couple of months ago that we’re going to, you know, invest a hundred—at least a hundred million dollars in the next few years in fintechs.
So I think many of them are bringing, you know, some very valuable added services. You know, you look right here in the United States what Stripe and Square have done in terms of enabling a lot of e-comm players and long-tail physical-world merchants. In the case of Square, I mean, it’s—they’ve been enormously additive to the payment system. And, you know, I consider both Square and Stripe to be, you know, very, very important partners of Visa. And there’s, you know, that kind of equivalent player in many of the—in all the regions around the world.
So it’s about being—it’s about—in my opinion, it’s about being open to talk to anybody. It’s about being as unbureaucratic as possible and working on commercial deals that are good for them and good for us; that we can take our scale and our brand and our reach and they could bring their unique capability and we can come together in a commercial way that builds both our businesses.
HUBBARD: On this side. Yes, sir.
Q: Nick Bratt with Lazard.
Talking about competition, how do you distinguish yourself from MasterCharge (sic; MasterCard) and American Express?
KELLY: Well, sure, if Ajay was here or Steve Squeri was here, you know, I’m sure they’d have their own views. We could have an interesting debate about it.
I would say a couple of things. First of all, the number one thing I would say is our brand. You know, we do a brand health study in forty-eight countries around the world; largely the forty-eight biggest. It’s not quite that, but it’s close to that. And in forty-seven of those forty-eight markets, our brand is much—ranks much, much higher than Amex’s brand and MasterCard’s brand. And we know, from talking to banks and financial institutions and acquirers around the world, that many of them do business because of our brand and because of our reach.
Secondly, you know, our network, being the biggest in the world, just has incredible scale to it. And, you know, we run at least five nines—99.999—and many months we get to six nines in terms of reliability. We have the widest set of acceptance points around the world, certainly a lot wider than American Express, but, you know, not quite as—you know, that gap is not as big with MasterCard, but it’s a pretty good gap.
And then, look, a lot of this comes down to people. We—and I think both our competitors have good people too, but I think we have better people. And we work hard to embed ourselves with our clients and be great listeners and great collaborators. And, you know, I myself set the example. You know, I travel 80 percent of the time. And I’ve gotten to know—I don’t know—at least our top few hundred clients around the world. And we try to partner really well with governments. I think we have a really good reputation for partnering with governments. And that’s why I meet with as many world leaders as I can, as well as, you know, as many central banks as I can.
But they’re formidable competitors. I don’t take them lightly. You know, I spent almost a quarter of my century at Amex. I have a lot of respect for the company and the brand. And—but that’s how I would distinguish us.
HUBBARD: Sir, in the back.
Q: Rick Niu from C.V. Starr.
Al, you talked about Cash, Inc. being the biggest competitor in some parts of the world. What about China? Do you see the same thing? Or do you see in China, for example, UnionPay might be an up and comer to threaten you? Or would you say the Chinese tech companies that are really coaching the population to go from cash to cashless right away would be the biggest threat?
KELLY: First, a little bit of background. We don’t—we have been in China for thirty-seven years as a company, and we still do not have a domestic license in China. So yet China is a very important to us. We have relationships with fifty-five banks in China. And what those banks do is they issue Visa cards. Some of them are what we call dual-badged. They’ll have China UnionPay, which is the network of choice or the traditional network in China. It’s the equivalent of Visa or MasterCard. It just operates in—well, not just in China, but principally in China. And on the back of the card will be Visa.
And the way it works is if you’re a Chinese citizen and you use the card inside of China, it’ll be a China UnionPay transaction. If you use the card outside of China, it will be a Visa transaction. But if you’re a Chinese citizen, you can’t go use a Visa card anywhere in China. It’s got to be China UnionPay, because some banks issue two cards. They’ll issue a China UnionPay card and a Visa card. And if you pull out the Visa card, not the China UnionPay card, you won’t be able to use it.
China UnionPay is the kind of traditional player. They’re a big player. They’ve been there—you know, been there a long time. But there’s no question that the—that Alipay and WeChat are much more formidable competitors. You know, right now—unfortunately I say this, because it’s really changed in the last three or four months—if you’re an American and you go to China and you have a Visa card, it’s outside of the hotel that you might stay in—provided now I’m talking about you being in one of the, you know, six or seven biggest cities in China.
If you’re in one of the six or seven biggest cities in a decent hotel and on up, you’ll have no problem using your card. But if you want to go to—you know, if you’re yearning for a McDonald’s hamburger or a piece of Kentucky Fried Chicken and you show up with your Visa card, you know, a year ago, eight months ago, you could have used it. It’s much more difficult right now. And that’s—you know, that’s, you know, a challenge that we’re dealing with.
We’ve got an application in with the People’s Bank of China. And we’re hoping that as the vice premier, Liu He, and Ambassador Lighthizer and Secretary Mnuchin continue to push the bilateral trade-agreement talks between the United States and China that we know we’re part of that and we’re hopeful that that’ll, at some point, help get us into the market.
But we’ll enter the market behind, and we’ll have to scrape and—it’s a long-term play. You know, when it’s 1.4 billion people, it’s worth being patient and it’s worth being thoughtful. And, you know, we’ll get there over time. You know, China’s not going to bolster the stock price in the next year or two, but I certainly hope it does in the next decade or two.
HUBBARD: Yes, ma’am.
Q: Maryum Saifee, CFR international affairs fellow, but also with the State Department Foreign Service.
You talked about China and you talked about sort of how authoritarian regimes can leverage cashless platforms as a tool for surveillance. When you’re exporting these, you know, sort of—like, you talked about meeting with Sisi in Egypt. So what are the vulnerabilities for citizens, consumers, in these illiberal democracies or authoritarian regimes when it comes to going fully cashless?
KELLY: Oh, I don’t know. You’re probably better off—better answering that question than I.
I think that the—I do think the governments are well intended. I mean, if they have these programs to subsidize their citizens, I think they want to make sure that they’re being used properly. And I think there’s a better chance that those programs are used properly if they’re—if they operate in a digital way as opposed to just cash.
I mean, what worries me about cash, even in those situations, is, you know, if it gets lost or stolen, you’re history. I mean, you lost it. You know, you can—we can lose a credit card and you can be protected. You can lose a debit card; you can be protected.
You know, there’s a lot more protections in a digital economy for the citizen than there is in cash. So I think that alone is a good reason to continue to push it and promote it.
Q: Jove Oliver, Oliver Global.
I want to come back to the data question really quickly. Roger McNamee is out with a new book, Zucked, and he talks in there—I think the example is with MasterCard, so I’d be interested if it also applies to Visa—where they will pass on or sell user data to places like Equifax, and then there’s no agreement between Equifax and a user about how that data gets used, and it gets contributed to profiles and on the third-party market and who knows what happens.
So I guess the question there is, does that apply also to Visa? And has things like GDPR, like, changed your business practices fundamentally, or with the California privacy bill that’s being debated now in Washington? Are those big changes that you have to make to comply with those? Thanks.
KELLY: So I doubt—I could be missing something—I doubt MasterCard is sharing data with Equifax because they don’t have it. The people that are sharing data with Equifax are the banks that do business with Visa and MasterCard. And they share, you know, decisions they make, and they have rules about sharing information about people who go delinquent and go late, et cetera. And that’s the whole idea of kind of having this open sharing to try to help the overall credit environment in the entire country.
So we don’t really have that issue. We don’t—we’re not involved in the credit decision at all when somebody gets a card or doesn’t get a card. We have no say in that decision. And frankly, we have no say—we contribute to the decision, but the ultimate decision—when you go to use your card, in that less than a second, the way it works is your information goes from the merchant to what’s called an acquirer. It then comes to Visa, and we send it to the bank.
Now, we often—it depends on the relationship we have with the bank—we might provide our own data to help inform whether it’s fraudulent or whether we think there’s a risk issue, and we provide that data pack in what we send to the bank, and then the bank uses their data and our data and makes a decision and then routes it back through us and back through the acquirer and back to the merchant.
So we’re not—we’re not collecting any data. In fact, we don’t even have skew-level data. So what we know is I know that you went to Walmart at 11:00 in the morning at the Walmart in, you know, Sioux Falls, South Dakota. And I know that you spent $150. I have no idea whether you bought a cooler or you bought a fishing rod or whatever you bought. I don’t know.
So we don’t have—we have a richness of data because of our scale. I mean, in most markets we’re the market leader. And so we have a—we know when everybody shopped. We know where they shopped. We know how much they spent. We know their velocity. We know if they only shop certain days of the week. We know if they shop—we can tell whether they shop online exclusively or face to face exclusively. We have a lot of information. But we don’t have a lot of that very specific information, which I actually like that, because it’s the kind of thing that can get you in more trouble.
HUBBARD: Well, we won’t be getting in trouble. On behalf of the Council, I’d like to thank members for their role in the conversation. And join me in thanking Al Kelly. (Applause.)
KELLY: Thank you.