Visa Inc., the San Francisco-based payments network operator, reported a 7% increase in earnings in the fourth quarter of 2016 backed by increased payment volume as shoppers enhanced usage of credit and debit to make payments.

The company reported an earnings figure of $2.07 billion translating to 0.86 cents per share against analysts’ estimate of 78 cents per share. Last year’s fourth quarter earnings figure was $1.94 billion translating to 80 cents per share.

The earnings increase in 4Q16 was also helped by the acquisition of Visa Europe. The company reported that it processed payments of $1.8 trillion in the last three months of 2016 which is a 39% YoY increase, calculated at constant dollar basis. The company also confirmed that a large portion of this increase in payments volume is contributed by the newly Visa Europe.

However, even with the absence of Visa Europe’s figures, Visa’s payments increase was substantial. In the US alone, which is the company’s biggest market, it processed $803 million in payments in the last quarter, a Year-on-Year increase of 12%.

The US accounted for 45% of the total payments volume while Europe contributed to 20% of the total in the fourth quarter of 2016. The number of processed transactions increased 44% to 27.3 billion while cross-border payments went up 140% on an unchanged dollar basis.

The reason why payments made by Visa debit or credit cards are so important for the world’s largest payment processor’s revenue figures is because it collects a small fee for every transaction it processes.

The fee that Visa collects is usually about 2% of the transaction amount. And backed by these increased payments, the company posted revenue of $4.46 billion in the fourth quarter of 2016.
The net operating revenue for the company also rose 25% to $4.46 billion, again topping analysts’ estimates of 44.29 billion.

Alfred Kelly, CEO of Visa who took over from Charles Scharf on December 1, 2016, said, “Visa’s fiscal 2017 is off to a terrific start,” referring to the payments volume growth globally. Charles Scharf, the ex-CEO of Visa, was responsible for the company’s reunion with Visa Europe.

The company’s Chief Financial Officer, Vasanth Prabhu said, “The battle between strong business fundamentals and unfavorable exchange rate shifts will drive our results as we look ahead to the rest of FY 2017.”

MasterCard, the second largest payments processor in the world after Visa, on the other hand, reported revenues lower than analysts’ estimates primarily due to increased rebates, a robust US dollar, and increased incentives.

Visa along with its competitor MasterCard Inc., are trying to capture the market in China which is presently dominated by the government-run China UnionPay Co Ltd.
Visa affirmed its long-term commitment in China and said it would formally submit a license application to operate in China.

On the back of good revenue numbers and good future prospects, Visa’s share price climbed over 5% since the start of this year as against an increase of 2% for Standard & Poor’s index.

March 7th, 2017

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