The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide

The bubble isn’t burst yet.

Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures


were stronger.

Gold futures

fell while oil futures

edged higher.

The British pound

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple

and Facebook

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

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Corporate bond issuance off to a bang in September

Corporate borrowing is off to the races.

Getty Images

Companies wasted no time going back to the borrowing trough after the long Labor Day weekend.

U.S. investment-grade companies already borrowed $46.7 billion in the bond market this month through Wednesday, a single day that accounted for $21.3 billion of the total, according to BofA Global Research.

Notable among the week’s deluge was a debut $1 billion green bond issued by JP Morgan Chase & Co.
putting it alongside other major corporations from Google parent Alphabet


to Visa Inc.
which in recent weeks have raced to borrow with do-good purposes.

September often can be a busy month for corporate borrowing, as companies focus on the remaining weeks left in the year to lock in optimal financing — meaning before Thanksgiving, when the typical year-end lull begins to take hold.

Here’s a look at how September bond issuance stacked up over the past five years:

The pandemic has made this year anything but typical, including with a record $1.5 trillion already borrowed by investment-grade companies so far in 2020 to help fund their operations through the year’s end.

Many highly rated businesses borrowed fresh mounds of debt at lower rates than ever before, even though they are now carrying record levels of leverage.

Read: U.S. corporate debt soars to record $10.5 trillion

However, with the Federal Reserve’s unprecedented pandemic support, there’s little reason to think big businesses have had enough of today’s ultra-low borrowing rates.

“It’s a very busy September,” said Wendy Wyatt, a portfolio manager at DuPont Capital, of investment-grade bond supply. While she doesn’t expect to see the same eye-popping borrowing boom as in March, April and May, when companies were panic-borrowing, Wyatt has been encouraged by the recent trend where bond issuance has been used by more companies to kick their debts down the road or to repay near-term maturities.

“It’s not hideous. It’s a smart business decision,” she said of the debt replacement or reduction strategy, even through she’s also keeping an eye on companies that look to take on more debt to fund mergers and acquisitions.

“M&A has picked up and you’ve got to be cautious about that,” she said.

Related: Coronavirus slashes deal-making globally: What to expect next

To be sure, some of the big winners of the pandemic debt boom have been investment banks hired to arrange the funding.

Revenue at investment banks jumped 32% to $101.6 billion in the year’s first half from a year prior, its highest level since the first half of 2012, according to Coalition, a global analytics company.

What’s more, Coalition expects the year’s swift uptick in investment banking business, particularly in fixed-income, currencies and commodities, to combine with further head-count reductions at banks and produce an 12% return on equity for institutions it tracks in its index.

That would mark a significant reversal of a trend where ROE for banks in the index have declined each year since 2016, when it hit 9.5%.

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Tents fit for a wedding reception and artfully constructed wooden bandstands: Welcome to outdoor classrooms during a pandemic — and now for the bad news

It didn’t take a pandemic for Sharon Danks to recognize the benefits of outdoor learning.

In fact, she started researching the environmental, physical and mental-health benefits of outdoor learning more than two decades before founding the nonprofit Green Schoolyards America seven years ago.

Before the pandemic, Danks partnered primarily with individual schools in districts near Berkeley, Calif., where the organization is based.

The pandemic, she said, has only strengthened the case for outdoor learning nationwide, especially given the amount of scientific research suggesting that the outdoors is less hospitable to the coronavirus than indoors where air circulation is significantly more limited.

See:Two teachers face a difficult choice: One welcomes ‘normalcy,’ while another feels ‘rage,’ and COVID-19 has radically altered feelings about school for both

The U.S. Centers for Disease Control and Prevention recommends that schools “consider using outdoor space, weather-permitting, to enable social distancing.” The agency specifically recommends having lunch outside in place of in a communal cafeteria or otherwise eating within classrooms.

Dr. Anthony Fauci, who heads the National Institute of Allergy and Infectious Diseases, has also urged schools to find ways to offer as many outdoor activities as possible. “Get as much outdoors as you can,” he said in a Facebook

live event in August. “If you look at the superspreader events that have occurred, they’re almost always inside.”

The American Academy of Pediatrics echoes Fauci’s views also urging schools to “utilize outdoor spaces when possible.”

Some schools have even built wood bandstand-like structures in the grounds to provide children with outdoor spaces.

Weather permitting, others have opted for tents that look more like they’re going to welcome wedding guests instead of children and teachers. Another school simply uses a circle of tree stumps.

“Nature is something that has been proven to decrease stress levels, and, during this pandemic, there has so much stress and trauma,” Danks said. What’s more, not all school buildings have enough space for children to maintain the recommended six feet of social distance.

“Outside not only do you have air that isn’t recirculating, but kids don’t have to stay in assigned seats all day and can actually move around,” she said.

Many schools recognized that back in March when they shifted to virtual instruction and reached out to Danks inquiring about how they, too, could create outdoor learning environments in preparation for the fall.

The overwhelming amount of inquiries she received led her to partner with three other nonprofits to form a National COVID-19 Outdoor Learning Initiative that provides schools with templates for how to construct an outdoor classroom, lesson plans and other tools with the support of more than 400 landscaping, design and educational volunteers.

One problem she noticed: “The bigger the institution, the longer it takes to change direction. Smaller schools such as single-district public schools and independent nonprofit private schools are doing this much more quickly because they don’t need to ask for permission.”

Not all schools have parent-teacher associations

But school size isn’t the only thing holding back schools from building outdoor classrooms in parts of the country where in-person learning is allowed to take place.

For children with special needs, for example, an outdoor learning environment poses a slew of problems, said Mindy Rosier-Rayburn, an elementary special-education science teacher at the Mickey Mantle School in New York City.

As of Friday nearly 800 schools in the city were approved to offer outdoor learning.

The New York City Department of Education did not respond to MarketWatch’s request for comment regarding efforts to level the playing field for lower-income schools that would like to offer outdoor learning, but can’t because they lack the funds to do so.

When Mayor Bill de Blasio gave city public schools the go-ahead in late August to offer outdoor learning in streets and parks near schools, Rosier-Rayburn recognized that there would be a “glaring equity issue” for schools in higher-income neighborhoods versus lower-income ones like the school district she teaches at, in Harlem.

“The comments I heard early on were that PTAs can help pay for these things,” she said, “but my school doesn’t even have a PTA, and there are so many others that don’t.”

“We are a Title 1 school,” she said. This type of school typically has a high concentration of children from low-income families and receives federal grants. All students attending Mickey Mantle School qualify for free lunch, she said.

When Rosier-Rayburn started teaching science remotely in the spring, she said, “I didn’t even feel comfortable asking parents to get supplies to do science experiments. If the experiment involves something I think they had at home, I tried to do that.”

Even if Rosier-Rayburn’s school had access to funds to purchase tents and other outdoor items, it would be a nightmare for her and her fellow teachers.

“We have several children who are runners, and that terrifies us. In a building you can control the situation, but outside you can’t,” Rosier-Rayburn, who has been a special-education teacher for nearly 24 years, told MarketWatch.

“We’re always on guard — just like when people enter a room they look for the exit and nearest bathroom, we constantly have to think: What could a student possibly hurt themselves with? That’s why outside learning is the worst idea.”

Additionally, she said several autistic students “could have sensitivity to sounds like honking horns.” Another concern: Some children “tend to put everything in their mouths.”

Plans are still up in the air for the upcoming school year, which in New York City is slated to begin on Sept. 21 after the school date was pushed back when the United Federation Teachers, a labor union composed primarily of public school teachers, threatened to strike over safety concerns relating to in-person learning.

For all of the above reasons, Rosier-Rayburn said she’ll continue teaching remotely, since she has received a medical accommodation to do so.

(The UFT did not respond to MarketWatch’s request for a comment.)

Cara Sclafani, a parent of two children who attend P.S. 185, a New York City Title 1 public elementary school, also located in Harlem, has health-related reservations about even sending them back for partial in-person learning certain days each week during an ongoing public health crisis.

As co-chair of the District 3 Green Schools Group, a coalition of parent volunteers who represent Manhattan’s Upper West Side and parts of central Harlem, advocating for outdoor education, Sclafani has advocated outdoor learning as much as possible.

Over a year ago, she successfully received two grants from New York City nonprofits to transform a deserted lot on school grounds that was “pretty much overrun with weeds,” she said, into a school garden and outdoor learning area.

Pictured is one of the outdoor learning areas at P.S. 185 which was previously a vacant and overgrown lot.

Cara Sclafani

Last year, she said, it was always a challenge to get teachers to wander outside of the classroom, “even though we set up this nice area for them with a tree canopy, benches and a reading library.”

And now? “The teachers are going to bring their students outside at least once a day,” Sclafani told MarketWatch. “Whether it’s just to read a book, paint or have physical education outside.”

She considers these types of activities “easy wins” to accomplish. Ultimately, however, she and other members of D3GSG are working on a “long-term vision” of having a “full-blown outdoor learning program” by the spring of 2021.

Sclafani said she was directly inspired by a Green Schoolyards America workshop she attended in June about constructing an outdoor learning environment. The organization, she said, has helped redesign P.S. 185’s outdoor learning space. She is on the infrastructure team at Green Schoolyards and is helping advise other schools across the county.

”Having outdoor learning at P.S.185 is a key factor for my family in determining whether or not my kids will attend in-person learning. We don’t have the school schedule yet, but I am hopeful my kids will be getting outside for at least a couple hours every day.”

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JP Morgan enters green bond push with $1 billion debut debt deal

The San Francisco skyline is obscured in orange haze Wednesday.

AFP/Getty Images

JP Morgan Chase & Co. entered the green-bond world on Wednesday, offloading the bank’s first set of bonds specifically to fund projects with a sustainability bent.

While the banking giant has arranged debt with an environmental or social-good purpose for its clients and other companies, this was JP Morgan’s first $1 billion foray into issuing such bonds on its own behalf.

Many investors welcomed the move, not only because of the weight JP Morgan

carries in the market as the nation’s biggest U.S. bank by assets, but also because of a growing acceptance within the U.S. that a climate crisis threatens both environmental and financial instability.

Read: CFTC’s groundbreaking climate-change report sounds a bipartisan alarm on costly risks for U.S. financial system

JP Morgan’s bond deal hit as wildfires raged along the West Coast, with smoke from fires shrouding the San Francisco Bay Area on Wednesday in an eerie orange haze and underscoring how climate change threatens to make extreme fire events, power outages and forced evacuations the norm.

“The more the larger players come along, the larger the scale to move things along faster,” said Steve Liberatore, Nuveen’s lead portfolio manager for environmental, social and governance (ESG) criteria and impact investments.

But Liberatore also stressed that a key part of tackling the unfolding “climate disaster” is to mitigate it in an “economically beneficial way for the average person.”

That can mean achieving a lower cost of capital for renewable energy projects than what’s available for funding fossil fuels.

To that end, JP Morgan was able to pull in pricing Wednesday amid high investor demand, clearing the bonds at a spread of 48 basis points over Treasurys BX:TMUBMUSD10Y, after they initially were floated in the range of 65 basis points.

A bond spread is the level of compensation investors get paid above a risk-free benchmark to act as a creditor, with lower spreads often indicating high demand or a lower expectation of default.

“Generally, green bonds yield less, meaning the cost of financing is lower,” said Pri de Silva, senior corporate credit analysts at Aware Asset Management, adding that JP Morgan priced similar bonds in May that were trading on Wednesday closer to 58 basis points over Treasurys.

“From a funding perspective, I’d say there was a 10-basis-point advantage,” de Silva said, even though he noted the “sunk costs” involved in setting up the new green issuance platform, including providing the “belts and suspenders” to ensure there’s a process in place to track that only eligible projects are funded.

To that end, JP Morgan said proceeds from the debut green bond would finance a range of projects from green buildings to renewable energy, in a public filing.

Notably, the bank also listed areas that will be excluded from the funding from bond proceeds, including coal, oil, gas and nuclear energy projects, as well as activities that involve modern slavery, child labor and human rights exploitation.

Amid an overall corporate debt boom, the second quarter also saw a record $99.9 billion of “sustainability bonds” issued globally, according to Moody’s Investors Service, a category that encompasses green, social and sustainable bonds.

JP Morgan’s debut follows on the heels of Citigroup

and Bank of America
which issued green and social-good bonds earlier this year.

See: Bank of America sold a first-of-a-kind Covid-19 bond

“Banks are in a unique position to issue green bonds as they are interrelated with the broader economy,” said Brian Ellis, portfolio manager, Calvert Green Bond Fund.

“From an investor’s perspective, growth in green bond issuance provides increased opportunities for portfolio and project diversification, but also the ability to be more selective because there’s a larger group to choose from.”

JP Morgan declined to comment.

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Visa Inc. (V) Presents at KeyBanc Capital Markets Future of Technology Series – Transcript

Visa Inc. (NYSE:V) KeyBanc Capital Markets Future of Technology Series September 9, 2020 12:00 PM ET

Company Participants

Josh Beck – Managing Director

Conference Call Participants

Mike Milotich – SVP, IR

Josh Beck

Okay. Well, good morning to everyone in the West Coast; [ph] Mike and good afternoon or early afternoon to everyone in the East Coast. We’re incredibly happy to have Visa joined us for this fireside chat.

We are using a Q&A box, so you can log in through the website if you have any questions, please submit them. If you’d like to go the old school way, you can just email me it’s at So Mike was generous enough to publish a 8-k right before this chat, which we appreciate.

Question-and-Answer Session

Q – Josh Beck

So maybe you could just give us a little bit of a sense of a update on what you’re seeing and if there’s any kind of notable applications as we think about Q4 and such.

Mike Milotich

All right. So I want to thank you for having me and yes we did the 8-k. Just for you Josh.

Josh Beck

I appreciate that.

Mike Milotich

So yeah, I think what we’re seeing on the numbers is that the trends are mostly stable so far this quarter. So starting with the US, US credit, the August volume was down 8% year-over-year, which is consistent with what it was in July. So stable for the last two months, although if you look at the weekly trends that we showed, credit was improving sort of late in July, so flat out a month to month basis.

But some signs of improvement late in the month of August. US debit is still continuing to grow incredibly strong, it’s growing 24% in the month of August, which is down 2 points from July, but which in part is due to lower unemployment benefits, but still incredibly strong growth and that’s really being fueled by to lower unemployment benefits, but still incredibly strong growth and that’s really being fueled by primary from cash displacement to see acceleration in cash displacement as well as some shift away from credit. Those are two of the biggest factors.

When you look outside of the US, the trends are similar in terms of payments volume, in terms of what we’re seeing in the US. We’re seeing a lot of improvement in markets like Brazil, UK, UAE and Italy. So, those are all markets that were already positive but have been continuing to improve through the quarter and we highlighted a few other markets where they’re positive, but stable to where they were in July in markets like Japan, Germany and Canada. And then there are some markets that continue to be negative year-over-year but are improving through the quarter.

We highlighted India and South Africa as two examples of that. That gives you a little bit of a sense for the payments volume. In cross-border, again it’s stable, mostly consistent with where we have been in the last several months. And that continues to be limited by the number of borders that are truly open where people can really move freely.

So, if you look at the results, our volume was – in the month of August was negative 43%, so down 43% from last year excluding Inter-Europe transactions and we exclude those again because the premium of the economics is not the same as cross-border everywhere else in the world. And that is one point better and so a small improvement, but generally speaking cross-border, it was negative 45% in May, negative 44% in both June and July, now negative 43% in August.

So small signs of improvement but still early, you know a very limited recovery at this point. You know we are seeing – the good news is we are seeing positive signs when borders open. So on the earnings call we highlighted for example travel from the US to Mexico and the Caribbean, as those markets opened up we know within six weeks to eight weeks, we saw 40 point improvement in the year-over-year performance and we were seeing the same things with travel within Europe, where a lot of the borders are open.

And the most recent example of that is in Turkey, where Turkey opened their borders on August 1, through you know most of Europe and Russia and really the whole part of the world, it’s now opened its borders and we saw you know pretty significant improvement for travel into Turkey as a result. So the good news is that, when the borders open, we are seeing improvement in performance. But the reality is that, many of the borders are still closed and so there aren’t – isn’t a lot of improvement in the cross-border business at this point.

And then in process transactions, in August, it grew 3% and exited the month at 5%, so it was continuing to improve through the month and this has really been fueled by domestic transactions. So you know the entire recovery process transactions to being positive growth from where it was just a few months ago, is essentially all coming from domestic. And so it’s sort of mirroring what you’re seeing with the volume.

You know our payments volume as we’ve said is, has trended back to positive year-over-year growth in many markets. But our cross-border business continues to be heavily negative and the same thing is being reflected in our transactions. So what that means is there’s a little bit of a mix shift going on within our data processing revenue, where the transactions are much more — a higher mix of domestic than cross-border.

So, when you’re thinking about our data processing revenue, it’ll continue to benefit from the growth of our value-added services as we called out in the quarter. But you’re also going to have a situation where because domestic is growing a lot faster, domestic transactions growing a lot faster than cross-border transactions you know the — the revenue growth may not improve at the same rate as what we’re seeing in the underlying transactions because of that mix change. That’s one thing to note.

And but you know otherwise the quarter is you know mostly I guess as we would have expected and highlighted in our July earnings call.

Josh Beck

Okay. Well, that that’s a really helpful update, obviously a lot to unpack when we think about debit and domestic and some of these international economies that are starting to open and the yield and such so that that’s really helpful. So thank you for that.

So maybe just a follow-up because I — there’s so much attention on the cross-border, I think you were — are quite helpful in explaining really pre-COVID I believe it was two thirds travel what was roughly the mix excluding some of the intra-European dynamics. So maybe just help us understand like, as we go through this recovery process and it’s very difficult to project.

But what’s the key mile markers you know that you — that you’re thinking about you know how should we think about the relative importance of say consumer versus commercial. Just help us think through the [ph] pack and what we should …

Mike Milotich


Josh Beck

… be watching over the coming quarters and year?

Mike Milotich

Yeah. So there’s a – yeah, so there’s a few things, I would highlight. So one is just from in terms of consumer versus business are our cross-border volume is very consumer-oriented. So we said and we disclosed that our payments volume is about 12% is B2B, so we’re 88% consumer and 12% B2B, and we said our cross-border business is even more consumer-oriented than our overall payments volume, and a lot of that stems from large business probably the airline tickets in particular is something we tend to not capture our cards, so because a large business will tend to go through some sort of travel agent you know sort of an online booking tool.

And so that means our cross-border business is very consumer oriented, which you know we think is good, because we believe consumers will still value experiences, want to see friends and family and so we think that part of travel will come back sooner.

The two dynamics to watch is, one is the proximity of the travel. So you know when borders open, you know will people be willing to go as far as they did previously. And you know what we’re already seeing at least at this point, although there’s you know very small recovery in travel, there is a little bit better among you know countries that are closer to where the you know the persons home country is then maybe we had seen before, so the growth improvement is a little better among countries that are a little more closer to home, which again is relatively intuitive and that’s the trend we’re going to keep watching to see you know what that means for the business.

The good thing for us is, you know our economics are really based on you go into another country. So whether it’s the country next door or it’s half way on the other side of the world no real big implications for us. But really the critical thing is critical thing is the borders opening.

As I mentioned, there’s still the large majority of countries are still a lot of restrictions in terms of quarantine if you go there. And so it really – what we can’t decipher yet is our people not traveling because they don’t want to or they’re not willing to or because they can’t.

And at least where we see the borders open, we are seeing a significant improvement maybe not all the way back to 2019 levels of spend, but we’re seeing a pretty meaningful change in the trend once the border opens and that at least gives us some confidence and some optimism that if more borders were to open we’d see some improvement. And then of course anything related to therapeutics or vaccine is also likely to help particularly because again it’s likely to help with the border closings. And so that’s really what we’re watching closely.

Josh Beck

Okay. Yeah. I can definitely vouch as of pent-up demand customer to do some consumer travel. So I think that is a real thing. But you know also wanted to talk a little bit about e-commerce so that’s the area that we certainly have seen a surge in which is fairly intuitive. And we have started to see though a bit of a gradual reopening as you mentioned some of the domestic strength. So I’m wondering has that really maybe come at the expense of e-com where it slowed down or maybe has the strength persisted there. Any color you can share on that front?

Mike Milotich

Yes. That’s one of the most powerful trends that we’re seeing is that, actually as markets are reopening and consumers and small businesses are getting more and more out doing commerce in a face-to-face environment. We’re not seeing a big slowdown in the card-not-present spending. And that’s a really positive sign.

So, if you take the US for example because we disclose these trends, our – since mid-April our card-not-present growth has consistently been over 30%, so incredibly strong growth and that has been consistent now for several months versus if you look at the card present spending, it was more than – it was down more than 40% in April. And since sort of July and August, it’s been down year over year only in the single digits.

So, there has been a 30 to 40-point improvement in the card present and the card-not-present growth remains steady over 30%. So – And this is something we’re seeing in a lot of other markets around the world where even as the markets are reopening again and people are going back out and shopping in a face-to-face environment, a lot of the behavior in the shift online appears to be sticking. And as those card present numbers even get into positive growth I guess, we’ll see how much of that lasts. But at least at this point, pretty dramatic improvements we’re seeing in card present and the card-not-present growth sustaining.

Josh Beck

Okay, that’s really helpful. One of the other questions I wanted to ask is about that face to face that you’re seeing with this domestic resurgence, certainly contactless has I think probably become stronger value proposition. In some ways, I think it was always there.

But it’s one of those things I think is more top of mind and you gave some powerful stat about the number of terminals that are capable and the issuance of cards. So maybe just help us think about the adoption of contact with and maybe held that curve could be bent really because of everything that is taking place.

Mike Milotich

Yeah. There’s no doubt that that’s one of the things we’re seeing and contactless particularly is a effective at displacing cash at the lower ticket levels, but it’s really taken off in this environment as people are not wanting to handle cash.

We mentioned on our earnings call that we had about 50 countries where our contactless penetration of face to face transactions improved by at least 5 points just since the previous quarter. So from the March quarter to June quarter a 5 point increase in penetration at least in 50 countries. So it’s a pretty significant change in adoption is coming as a result of this. And most of that is fueled by is outside the US. So as we’ve talked about many times there’s a big difference between what’s happening in the US where we’re quite a bit behind in the rest of the world, right.

So outside the US two-thirds of all of our face to face transactions is now – are now contactless that we process. So we already are well over the majority versus in the US we’re still in the mid-single digits. So where we are in the US, we have issued over 200 million cards out there now and we expect to have 300 million contactless cards by the end of the calendar year.

And we’re – so we’re making good progress there, but the penetration remains in the mid-single digits. The good news is that as we have talked about before, we have many markets, so there’s over 50 countries where at least a third is face to face pending is contactless and so we have a lot adoption curves we can look at.

And where the US is at this point is where we would expect it to be what we’ve seen in other countries. So you know we said it takes two years to three years for the adoption of contactless to really take off. It takes a couple of years for there to be enough cards in the market and enough merchants who are accept it, where consumers can feel like they can top almost everywhere they go. And then once that happens is when it really takes off. And so the US really started in the early part of the last calendar year.

So, we’re still say you know 12 months to 18 months away from when we would really expect to see a significant ramp in the adoption. But all the pieces are in place as you mentioned we’re getting more and more merchants to accept it, more and more cards are being issued. And it’s just going to take a little time like everything in payments for the chicken in the egg. And we do expect you know that ramp in that increase to come it’s just it’s still just going through the process of establishing enough ubiquity on both sides of the ecosystem.

Josh Beck

Really helpful. So I mean just to wrap these two points together I mean certainly your market share in e-commerce is higher I mean cash is effectively not, not an option. You know when you think about contactless adoption rising certainly that’s just showing really the affinity for digital at the expense of cash. So it seems like as you wrap these things together and you look out multiple years that you could you know make the argument that the penetration of digital payments could be higher than maybe what you would expect it entering this year.

We’ve seen some very powerful stats within e-commerce penetration. And many companies that are focused on that space and demand may have been put forward Focus on that space and demand may have been put forward four years to five years, so just trying to understand like is there a case where we look out multiple years and we look back and we just realize that the adoption curve of digital payments has gone up notably.

Mike Milotich

And we believe so. I think the question remains to the magnitude right but there’s is – it’s hard to – there’s so much data now that suggests that there is an acceleration, it would be hard to say that there isn’t. And the question is to what’s degree is all this going to stick as we talked about before once everyone is operating in the face to face world as normal which is a few countries are back to that point at this juncture. But we’re definitely seeing it whether it’s the e-commerce adoption, so we’re seeing not only an incredible acceleration in the number of new users.

So in many mature e-commerce markets we’re seeing a 10%, 20% increase in the number of active users of e-commerce on our cards just since pre-COVID-19 and we’re also seeing within those users an increase in how much they spend. And then in less developed e-commerce markets we’re seeing 50% to 100% in increases in the number of users of our credentials online. And so and we think that a number of those people are going to have liked the experience are not necessarily going to go back to how they were transacting before.

So certainly the e-commerce is a significant acceleration and then the same thing in tap to pay. I mentioned 50 countries having a 5% increase and that’s with people the heavy use cases in contact was tend to be things like transit and when you step out at lunch at work and grab you know a sandwich or you grab a coffee you know those are the things those smaller purchases is where our contactless tends to be adopted early, and a lot of those transactions have gone away and we’re still seeing you know a big increase is just a lot of people are not wanting to handle cash. And so, yes, we do think that there’s a — there’s an acceleration here that will benefit the business in the long run.

And in addition to those two forces that are happening online and in the face-to-face it’s also those things that have tripled down effects in terms of you know the demand for authentication and fraud capabilities online you know where we can sell additional services. It’s putting you know more emphasis on tokenization and — and better securing the ecosystem.

We’re unlocking G2C use cases in terms of the government just — distribution of funds to consumers, we’ve always highlighted that as a Visa direct use case or where we didn’t have real life examples until COVID and now we have several and that is opening government’s eyes as to you know different ways that they can approach the disbursements of funds to citizens. So you know these are all things that you know we’re seeing that are a little bit unlocked by COVID and the great thing from our perspective is that all of these things were key pillars of our strategy before COVID, right.

So these are all of the things that we were already focused on. They’re just you know as you said sort of being pulled forward or accelerated as — as a result of this you know unfortunate pandemic.

Josh Beck

Really helpful. I’m kind of curious on maybe some of your longer-term initiatives; if there’s been a notable impact to certainly you’ve made some good inroads with click to pay in your SRC button. So, maybe just help us think through if there’s been any notable change in that initiative. And just – and really how you are thinking about that opportunity over the next several years?

Mike Milotich

Yeah. So, there is a huge opportunity as we just talk about how much e-commerce adoption is increasing. And there is still just too much complexity in the online experience. In terms of card abandonment, high fraud and particularly in guest checkout. So around the world, about half of e-commerce is still done via guest checkout. And that is where there is particularly heavy friction, right.

If you have your card on file or maybe you are using something like PayPal, then a lot of [indiscernible] is removed, but there’s still a big portion that is the guest checkout and that’s really the primary focus and target for secured e-commerce So, there is no doubt that as more and more people go online, we would like to improve that experience as much as possible.

And it really comes down to providing a simple and consistent experience both for consumers and merchants and then reducing fraud primarily by using [Audio Gap] which also in two-factor authentication capabilities. Ando once you do that like just the use of tokens. For example, we see a higher approval rate from insurers because they’re more confident that the transaction is good. And so, this is something that is creating I guess even more momentum in this initiative.

We have migrated over 10,000 merchants in the US through June and we have just started to expand into other markets, so we’re currently live in 10 markets and now have about 2,000 merchants in those markets. Places like the UAE, UK, Poland, Australia so we are rolling it out, but just as we talked about with contactors in the US, you always have a chicken or the egg issue in payment. And so we’re really focused on the merchant side right now, trying to get it enabled as much as we can.

So that when we make a push on the consumer side both through our early efforts and through our issuer partners that you know consumers can use it in many places. So right now, we’re happy, we’re making good progress. But you know we’re still a little ways away from it being a scale solution on both sides of the ecosystem.

Josh Beck

That’s very helpful. Maybe shifting gears a little bit to more developing economies, where the penetration of cash is well above 50%, so areas like LatAm and Asia, you know have there been any notable changes maybe in your trajectory in these areas. Obviously you have to think about some of these super apps and certainly it’s a partnership model as well. So maybe just help us think through, some of these emerging economies and how you’re thinking about the opportunity in those regions to displace cash?

Mike Milotich

Yeah. So, I mean there is an incredible amount of cash in those two markets. In Latin America for example, you know we’ve said that, we size the cash and check opportunity in Latin America about $2 trillion. And what’s interesting is, we have over $500 billion of cash accessed on Visa cards that go to the ATM already in Latin America.

And in fact our volume in Latin America of cash is actually higher than payments. So you know there are more people going to the ATM to withdraw cash than using their card to actually make purchases. So that’s just an incredible opportunity where consumers are already using our capabilities maybe just not in the way ideally we would like but that’s really the focus is to get them to shift from going to the ATM to just making purchases directly at the point of sale and there’s really three ways we’re doing that.

So one is you’ve got to grow acceptance so we’ve – we’re focused on penetrating particularly everyday spent categories in a number of emerging markets we still have a lot of work to do. And the great news is in the last two years we have made huge progress here.

So you may have noticed in our disclosures each of the last few years we’ve grown our acceptance points by double digits and you might say that’s a little bit surprising given how much are the businesses, but there’s so much new innovation in the area of acceptance whether it’s with QR codes or tap to phone is now coming – there’s just and we’re working with new types of payment facilitators and acquirers where we can really grow acceptance quite quickly.

So for example in Mexico it’s a great market because it’s a large and down to tourism market. And almost half of that spend were or inbound tourism into Mexico is made on a Visa card but – or a Visa card is used in some way, but there’s a lot of cash. So we partnered with a company really innovative partner called Clip where we have enabled more than 300,000 really together with Clip have enabled over 300,000 new merchants in less than two years and there’s lots of specific partners in each market where we try to identify to expand that acceptance.

We also are focused on the user experience so things like we’ve already discussed in terms of what we’re doing online and with contactless and then, finally an important thing in a lot of these emerging markets is just, it’s just the consumer education.

So we will target our marketing ad campaigns really focused on consumer and merchant behavior and how to use electronic payments and the benefits of them and in Peru, for example we ran a major campaign and the – after the campaign, we saw through consumer surveys that the intent to use among consumers and merchants to accept was up over 10% and the Visa transactions grew by more than 4%. And so, there is a big component of that in terms of — to unlock these markets is just helping both consumers and merchants see the value and that’s what we’re focused on.

In terms of what you mentioned about the Super Apps, the great news for us and in our view one of the biggest developments in payments and the reason two to three years is that these closed-loop systems are opening up and are becoming our partners and it’s happening in all parts of the world and we think that’s a huge opportunity to both expansions and acceptance.

Josh Beck

Okay. Great. Well, I’d like to end on a very futuristic topic. So that was very helpful to think of through emerging markets and Super Apps that’s been a great conversation talking a bit about the state of the business and what you’re seeing. So it’s been incredibly helpful. We really appreciate your time. I know you’re incredibly busy working from home obviously managing a very large workforce. So we’re really appreciative of your time, Mike and thanks again for joining us and I hope you have a great, rest of the day and rest of the week.

A – Mike Milotich

Thanks so much for having all.

End of Q&A

Josh Beck

Okay. And thanks everyone for joining. Cheers.

Mike Milotich

Thanks, Josh.

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