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Visa Inc  (NYSE:V)
Q4 2018 Earnings Conference Call
Oct. 24, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Visa Fiscal Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions)

I would now like to turn the conference over to your host, Mr. Mike Milotich, Senior Vice President of Investor Relations. Mr. Milotich, you may now begin.

Mike Milotich -- Senior Vice President of Investor Relations

Thank you, Katie. Good afternoon, everyone and welcome to Visa's fiscal fourth quarter and full year 2018 earnings call. Joining us today are Al Kelly, Visa's Chief Executive Officer; and Vasant Prabhu, Visa's Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at www.investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website.

Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent reports on forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website. For historical non-GAAP financial information disclosed in this call, the related GAAP measures and reconciliation are available in today's earnings release.

And with that, let me turn in the call over to Al.

Alfred F. Kelly, Jr. -- Chief Executive Officer

Mike, thank you and good afternoon, everyone and thanks for joining us today. Our performance remained strong in fiscal fourth quarter, revenue growth was 12% as all our key business drivers remained robust despite the stronger dollar. Payments volume growth on a constant dollar basis of 11% was right in line with last quarter with strength in the US offsetting a slowdown in dual branded card volume in China. Excluding China, our payment volume growth would have modestly accelerated versus the last quarter.

Cross-border on a constant dollar basis was 10%, the same as the prior quarter. Processed transaction growth was consistent with last quarter at 12%. Expense growth adjusted for a donation of available for sale, investment securities to the Visa Foundation was 12%, primarily driven by personnel-related investments.

Adjusted EPS growth was 34%. We also returned approximately $2.1 billion of capital to shareholders in the quarter, consisting of $1.6 billion of share repurchases and $500 million through dividends.

Looking back on this entire fiscal year of 2018, our global leading network connecting issuers and merchants got stronger on a number of dimensions. The number of cards including virtual cards increased by about 80 million (ph) to 3.3 billion (ph). Total Visa volume surpassed a record $11 trillion driven by 182 billion (ph) transactions or an average of 500 million (ph) transactions every single day during fiscal 2018.

Payments volume totaled over 8.2 trillion (ph), increasing by almost $900 billion year-over-year. Our payments volume growth was strong across the globe with double-digit growth in constant dollars in all regions except Europe which grew at 9.2%. And with our payments volume growing twice as fast as global PCE, Visa's penetration of global purchase PCE increased by half a point to over 16% this year. Transactions processed totaled $124 billion, up 12% lifting our processing penetration by one point globally.

A very important part of measuring the health of our network is found in the activity and results relative to merchants and issuers. In 2018, merchant locations increased by 7 million or 15% reaching a total of 54 million locations globally. And relative to issuers, deal activity picked up in Q4, particularly in Europe where we completed the shift to commercial client contracts. Beyond Europe, during the full year, we completed new agreements with clients driving roughly 15% of our total payments volume. By the way, in fiscal 2019, we're expecting more deal activity with new agreements for clients who drive roughly 20% of our global payments volume including Europe. The fact that 20% of our volume is up for renewal is not surprising given that our typical contract length is five years. Now, let me talk about how we've expanded our breadth and reach in 2018, which has set us up well for the future.

I will share a few highlights from across the globe and then provide insights into how we are driving growth in our digital solutions, accelerating adoption of our acceptance technology and expanding into new key segments. So let me start with some regional highlights starting in Europe. The technical migration to our global VisaNet platform was completed in late September, with the authorizations component finished following the clearing and settlement migration which completed in the first quarter.

Our European clients now have access to all our global capabilities. In fact, more than 60 clients are already utilizing at least one of our advanced risk services having just completed the migration. This was a very large effort that required sustained vigilance on our part to ensure there was no disruption to our clients. So we really couldn't be happier about the execution and we're now moving forward with one level platform. Our European clients also now enjoy the highest level of security and protection from our global cyber security systems and processes, in fact, earlier today we inaugurated a cyber fusion center in London, making it our second fusion center globally.

The conversion of European client contracts to commercial incentives is now officially complete as we signed the last remaining deals during the quarter, after agreeing to terms earlier in the year. We are very pleased with the outcome of this effort as there was a lot of risk in opening well over 100 client contracts in such a short period of time. As we've said previously, the amount of business we retained was better than we expected at the time of the acquisition. As we get past the integration, one of our priorities in Europe is gaining momentum with FinTechs by moving faster being more flexible and establishing an investment fund to provide financial support.

This quarter, we're beginning to have more success with FinTechs both in terms of signings but also agreement still to be contracted. We signed agreements this quarter with Revolut, JAJA in the UK, Solaris in Germany and G2A in Central Eastern Europe. Let me now move to Asia Pacific, where Q4 was an active quarter for deal renewals and wins across the region. A few examples include NTUC FairPrice co-brand which is Singapore's largest supermarket chain. The Mall Group co-brand one of Thailand's largest retailers and the AirAsia cobrand in Malaysia. In New Zealand, Kiwibank selected Visa as its long-term exclusive partner for all its payments products, which brings us to four of the Top-5 issuers now exclusive long-term Visa partners in that market. In China, we renewed the dual-brand card relationships with China Construction Bank and CITIC Bank as well as we won the new prepaid deal with Ctrip.

Building a new debit business in Japan continues to be one of our top priorities for the region, given the size of the opportunity. We now have over 8 million debit cards in the Japanese market, up over 40% since last year across 23 different issuers. In India, we renewed deals with many of the leading banks in the market, including the State Bank of India, HDFC, ICICI, Axis Bank and Kotak Mahindra and we are confident that these deals contribute to further strengthening of our market leadership position across debit and credit products.

Regarding the India data localization mandate, over the last six months Visa has been working toward implementing a solution to comply with the RBI's requirements. As of October 15th, we are storing data locally, where we can also facilitate the RBI's requirement of access to Indian cardholder payment transaction data. We have submitted a detailed status update and action plan to the RBI including how we will rearchitect our existing global processing systems to fully comply with the data only in India requirement. Our technology teams are working virtually around the clock to complete our solution with minimal impact to our clients and our cardholders.

In Latin America, we also had several co-brand wins, including Decolar in Brazil, which is the largest online travel agency in Latin America with an affluent customer base. Also in Brazil, we signed 10-year agreements with Bradesco, one of our largest issuers in the market and Credz a processor and local private label brand that will convert about 1 million cards to Visa contactless. In Argentina, one of our largest markets in Latin America, we will begin processing 100% of our domestic transactions in January of 2019. This enables us to provide all of the value-added services, Cyber capabilities and network reliability to our clients in addition to future innovations that we will add to our global platform. Adding all of Argentina to VisaNet will increase our processing penetration of domestic transactions in Latin America by more than 10 percentage points. And finally, one quick but important point on CEMEA. Airline co-brands are important portfolios in the Middle East to capture the travel of the most affluent customers. This quarter, we had a number of wins including Emirates in the UAE and Saudi Arabia as well as the HBL Qatar Airways portfolio in Pakistan.

Now let me turn away from the regional update to give some insights into how we are driving growth in our network using our digital solutions. Let me start with Visa Direct, which is one of the key ways we're capturing new incremental payment flows. Global growth continues to be over 100% this quarter, fueled by increased activities by end users as well as continued expansion of our reach and our scale. Our 2 billion plus Visa debit credentials globally, enabled us to execute Visa Direct transactions in more than 150 countries this fiscal year, but is also important to note is that the speed of funds within our total reach is very important, which -- with payment originators automatically leverage when issuers move their credentials to fast funds .

We are quickly increasing the number of issuers moving to real-time adding Spain and Ireland this quarter for a total of over 70 countries who are fast funds enabled. In the UK, Barclays moved to fast funds allowing participating Barclay's cardholders in Visa Direct program access to money real-time. In our goal to expand our reach, we will continue to look for opportunities to access accounts not directly linked to a Visa credential. To that end, our most recent expansion is with our Plus interbank ATM network which is leveraged by many non-Visa bank issued ATM card. TD Bank, Canada was the first bank to enable its Plus debit credentials to receive Visa Direct Deposits on non-Visa credentials. This is a great first step as other Canadian issuers enabled this expanded reach, we can serve most of the Canadian bank population of consumers and small businesses. We are then building upon Visa Direct's unique reach by rapidly scaling solutions through use case expansion and large platform enablement. We continue to deepen our penetration of existing verticals, including property and casualty insurance where our clients enhance their customers' experiences. This category represents $330 billion in claims payments, approximately 45% of which are paid by check today in the United States. This past quarter, we signed new partnerships with a couple of insurance companies to enable more real time disbursements to their customers. There are also many use cases that support the gig economy. For example, we partnered with PayActiv. One of the largest gig economy, earned wage access providers to incorporate Visa Direct as a real time payroll option. Given the growth and the number of workers participating in the gig economy, we believe this is a big opportunity, since many employers in the gig economy want access to their wages as they are earned.

Visa Direct distribution model also scales quickly in partnership with platform providers around the world. As you probably know, Visa Direct is powering many of the B2B -- P2P solutions globally. And another new example is Samsung's recent launch of P2P payments in partnership with VTB Bank in Russia. Providing a seamless customer experience for making payments as well as sending and receiving money. Another example of platform partners is in India, where with Paytm and PhonePe, both leading mobile payment apps who have activated credit card bill payments on the Visa Direct platform, enabling over 100 million mobile app customers. We recently announced the commercial expansion of the Visa Token Service for 20 credential on file token requesters, which we believe is a significant step in further securing customer payments in the digital channel. These leading acquirer gateway and technology partners include Adyen, Braintree's PayPal, CyberSource, Elavon, Square (ph), Stripe and Worldpay, just to name a few. And they will tokenize credential-on-file, digital payments on behalf of their merchant and payment clients. In addition to reducing fraud risk by not exposing cardholders' more sensitive account information, we're focused on improving card-not-present authorization rates, that frankly continue to be too low. Visa tokens also allow issuers around the world to push dynamic updates on lost, stolen or expired credentials to enable a frictionless merchant and customer experience. So, Visa now has over 60 global token requesters across 40 markets on our token platform. Last week, a significant milestone was reached for Secure Remote Commerce after EMB Co published a draft of the technical specifications.This now enables the ecosystem to begin building to the standard, while also allowing merchants and issuers a feedback period before the final specifications are published in about two months time. The specifications for branding and the user experience are still expected to be published in early 2019. We again are working closely with partners such as Adyen, Braintree, CyberSource, Stripe and Worldpay to activate the ecosystem for the initial launch of Secure Remote Commerce in mid to late 2019.

Now a few quick updates on the adoption of our acceptance technologies, including contactless and scan to pay. Let me start with contactless or TAP and pay adoption, which continues to grow rapidly as it is a better consumer and merchant experience than paying with a dip, swipe or scan. One in four domestic face-to-face transactions that run over our network globally are now contactless. If you exclude the United States, domestic contactless penetration is over 40%, which is up over 12 percentage points in the last year and up almost four points versus the last quarter. More than 20 countries have increased their domestic contactless penetration by more than 20 points since last year, led by Russia, which is up 38 points to over 50%. During the FIFA World Cup, contactless payments accounted for 45% of all Visa purchases across the 11 host cities in Russia. The US market is poised for significant contactless growth over the coming years. There are few facts to note. Number one, on the acceptance side in the past three months, several of the largest merchants have enabled contactless in their stores, including 7-Eleven, CVS Pharmacy stores and Costco. Over 70 of the top 100 merchants by transactions now accept contactless, an increase of more than 20 in the past year. Additionally, over half of all face-to-face transactions now occur at a contactless enabled merchant; up from over a little bit around one-third of all merchants a year ago. On the issuing side, several of our largest clients will begin issuing contactless cards over the next few quarters. We expect that there will be over 100 million Visa contactless cards issued in the US by the end of 2019. Costco is a good example of the potential impact when both the issuing an acceptance come together, since the Citi Costco cobrand card is contactless enabled. Over half of in-store payments at Costco on their cobrand card are now paid with a tap after Costco enabled contactless payments just in mid-August of this year.

Establishing scan to pay acceptance and cardholder usage is progressing very well. As we've discussed in prior quarters, India is our largest market. We now have over 700,000 scan to pay acceptance points. But we're also seeing momentum in a number of markets in the CEMEA region. In Tanzania this quarter, we signed a deal with HelloTel , a leading mobile network operator to put Visa credentials into their mobile phone wallets. We also launched scan to pay in Pakistan, which with HBL, country's largest issuer and acquire with 50,000 consumers being enabled in the first few days. And they have plans to make the solution available to almost 1 million customers and thousands of merchants in the coming months. In Kazakhstan, we partnered with a leading mobile network operator to introduce cashless ticketing in 3,000 public transport buses across four cities. Lastly, we continue to expand into new segments and B2B is our top priority. Specifically, we continue to innovate and grow our B2B payment offerings across both card -- core card solutions and expand into new payment flows. In terms of core card solutions, we remain the global leader, but there still is tremendous opportunity for growth. Our B2B payments volume was $950 billion or over 11% of our total payments volume this fiscal year. And the growth has been accelerating into the mid-teens in the past two quarters. Let me also share three examples of new payment flow opportunities we're capitalizing on in the B2B space.

One, we continue to expand our virtual card business including a partnership with Nexxus to enable their clients who are typically real estate property managers to pay suppliers more quickly, safely and conveniently by using Visa virtual cards. In Russia, we signed a new partnership agreement with Sberbank to support their growth in the small business and enterprise segments and maintain their leadership position in B2B in Russia . This is an example of partner seeing the value and differentiating to small businesses rather than just offering them a consumer card option. We continue to enhance and scale our B2B Connect solution. In addition to Visa virtual cards being a payment option offered to Bottomline's clients, we've extended our partnership with Bottomline to enable B2B Connect as a payment option for large ticket cross-border payables. We're also launching a digital identity solution that tokenizes an organization's sensitive business information, such as bank account numbers, giving them a unique identifier that could be utilized for their B2B Connect transactions. There were two other notable events in the quarter. The first, we reached the settlement with the damages class on the US MDL lawsuit in September and have submitted to the court for preliminary approval, which we expect to take a few months. There will be a period for merchants to opt out or object, but assuming the quarter assesses -- the settlement to be fair and reasonable, we expect formal approval to take place to -- to take at least a year to be in place. This settlement does not resolve the injunctive relief class claims seeking modifications to network rules. We are certainly pleased to be making progress, but it's hard to say when the MDL litigation will actually conclude. For more than 30 years, Visa has been a proud sponsor of the Olympic Games and this quarter, we renewed our partnership through the 2032 games, which includes the upcoming venues of Tokyo, Beijing, Paris and Los Angeles. The Olympic Games provides an unparalleled opportunity to promote the Visa brand at a regional and global level, while also facilitating partnerships and joint business initiatives with clients that come to life through co-branding and/or client usage of Olympic IT. The world's largest sporting event also provides a unique platforms for showcasing product innovations and launching new business initiatives.

So, fiscal 2018 was a great year where we delivered strong business driver and financial performance, while also advancing key initiatives that will drive future growth, such as Visa Direct B2B, contactless and digital solutions. We also successfully concluded the major aspects of the Visa Europe integration with the completion of the platform migration and the shift to commercial client contracts. However, fiscal 2018 is behind us now and we are totally focused on 2019.

Our financial outlook for fiscal 2019 includes annual net revenue growth of low double digits on a nominal basis with approximately one percentage point of negative foreign currency impact and a de minimis impact from the new revenue accounting standard. And we look for mid-teens earnings-per-share growth on an non-GAAP nominal dollar basis, also, including approximately one percentage point of negative foreign currency impact.

To share more of our details on our results and more on our 2019 outlook, I'll now turn it over to Vasant.

Vasant Prabhu -- Executive Vice President and Chief Financial Officer

Thank you, Al, and good morning, everyone. Good afternoon, everyone. We had a strong finish to fiscal year 2018. On a GAAP basis, fiscal fourth quarter net revenues were up 12% and EPS was up 37%. Adjusted to exclude a special item, EPS grew 34%, which includes a 10% percentage point benefit from the impact of US tax reform. Exchange rate shifts versus the prior year was a drag on net revenue growth of almost 50 basis points and EPS growth of approximately 1 percentage point.

Full year net revenues of $20.6 billion were up 12%, net income on a GAAP basis was $10.3 billion and EPS was $4.42. On an adjusted basis, net income for the full year was $10.7 billion, up 29% and EPS was $4.61, up 32%. The adjustments for each quarter are described in our earnings release.

On a full year basis, US tax reform contributed 10 percentage points to net income and EPS growth. For the full year, exchange rate shift added 1 percentage point to net revenue growth and 1.5 percentage points to EPS growth.

A few other points to note.In the fourth quarter, we donated available for sale investment securities to the Visa Foundation. Our adjusted results exclude this special item which is $195 million of non-cash G&A expense, as well as the realized gain in non-operating income/expense and the tax benefit associated with the charitable contribution. Growth remained steady across business drivers with little change relative to the third quarter. On a constant dollar basis, payments volume grew 11% and processed transactions grew 12%. Cross-border volume grew 10%. As a reminder, Q3 cross-border volume growth of 10% was reduced by 1 percentage point due to lapping of settlement delay in Europe last year. As the dollar strengthened, cross-border growth decelerated through the fourth quarter in some corridors, particularly commerce inbound to the US.

As the dollar rose, the currency translation impact on net revenue growth swung from the 150 basis point tailwind we enjoyed in the third quarter to an almost 50 basis point headwind in the fourth quarter, contributing a 200 basis points slowdown in reported net revenue growth trend. In addition to a strong dollar, this significant shift was driven by a sharp weakening in many emerging market currencies in particular, the Argentinean peso, the Turkish lira, and the Brazilian real.

For the full year, exchange rates increased net revenue growth by approximately 100 basis points. However, based on current exchange rate and the forward curve, the currency translation impact is expected to be a 100 basis point headwind in fiscal year 2019.

At the end of the second full year of our ownership of Visa Europe, results are tracking well ahead of our acquisition model. Cumulative EPS accretion is over 10%, two years ahead of expectation. We have also completed the two most significant and complex aspects of the integration. The technology platform migration and the restructuring of major client contracts to competitive commercial term.

In Q4, we repurchased 11.5 million shares of Visa stock for $1.6 billion at an average price of $142.84. For the full year, we repurchased a total of 57.5 million shares for $7.2 billion at an average price of $124.25. In addition, in June, 2018, we funded the litigation escrow account with an additional $600 million. As a reminder, funding of the escrow triggers a conversion rate adjustment of class B common stock to shares of class A common stock, which has the same effect on EPS as repurchasing $600 million of class A common stock.

In fiscal year 2018, we paid $1.9 billion in dividend, our Board has authorized an increase of 19% in our quarterly dividend to $0.25 per share per quarter.

Moving onto the quarter's business drivers and our financial results. I'll keep my comments on fiscal year 2018 brief and spend most of my time on our outlook for fiscal year 2019. Payments volume momentum continued with 11% growth in the third quarter -- for the third quarter in a row. US payment volumes grew 12%, fueled by 12% debit growth. Debit growth was driven by Visa Direct as well as robust consumer spending across most retail categories.

International payment volumes in constant dollars grew 11% with 1 point deceleration primarily due to the run-off of dual brand portfolios in China. In addition, acceleration in India and Southern Europe was offset by slow growth in the UK and Australia.

Global cross-border volumes grew 10% on a constant dollar basis. Inbound commerce to the US slowed with the strengthening of the US dollar falling to mid-single digits, after two quarters of double-digit growth. Cross-border commerce growth in Europe remains strong and stable. Outbound commerce from the US accelerated while growth in outbound commerce from Canada, Latin America and China slowed.

Transactions processed over VisaNet grew 12%, in line with the prior three quarters. Through October 21st, US payments volume growth was 11%, with US credit growing 11%, and debit 12%. Cross-border volume on a constant dollar basis was up 11% and processed transactions grew 12%.

Net revenues in the fourth quarter grew 12%, data processing revenue benefited from the pricing, which went into effect in the third quarter, growing 16%. International revenue grew 10%, with benefits from Q3 pricing actions offset by the impact of shifting exchange rates and lower currency volatility. Service revenues grew 10%. As a reminder, service revenues are recognized with a one quarter lag and reflects third quarter exchange rate.

Other revenues grew 13%. Client incentives stepped up from 20.8% of gross revenue in the third quarter to 21.7% as we signed several large deals. However, client incentives were lower than we had anticipated due to some contract signing delays. This delay was due to complex deals where the terms were agreed but multiple contract needed to be finalized and signed in order to recognize the incentives. As a reminder, Q4 last year was a very active quarter of contract renewals in Europe, China and Russia. As a result, year-over-year growth in client incentives is lower this quarter than in prior quarters of fiscal year '18.

Moving to expenses. GAAP operating expenses were up 23%, adjusted to exclude the special item previously noted, operating expenses in the fourth quarter grew 12%, largely driven by personnel costs. As we've mentioned in prior quarters, personnel increases are driven by higher headcount, dedicated to our investment initiative as well as higher incentive compensation resulting from our operating performance in fiscal year 2018.

Also, as you know, we increased our contribution to employee 401(k) plan in the US and acquired freedom earlier this year. In addition, we recorded a severance charge in the fourth quarter for adjustments we're making in various parts of our global organization structure. Expense growth in other categories was higher than our prior outlook as we made additional marketing investment, primarily around the very successful FIFA World Cup finals in Russia. And also had several non-recurring items in the quarter, including a litigation settlement.

Our fourth quarter tax rate was 19.6% on a GAAP basis and 21% adjusted to exclude the tax benefit associated with our contribution to the Visa Foundation. Adjusted EPS was $1.21, up 34%. Exchange rate shifts reduced reported Q4 EPS growth by almost 1 percentage point.

For the full year of fiscal 2018, net revenues were $20.6 billion up 12% including approximately 1 percentage point positive currency impact. Full year adjusted EPS was $4.61, up 32% with a currency tailwind of approximately 1.5 percentage points. As mentioned, US tax reform contributed 10 percentage points to EPS growth.

With that, I'll move to our outlook for fiscal 2019. Overall, our net revenue outlook for fiscal year 2019 assumes current trends and key business drivers remain largely intact through the year with the currency translation impact shifting from a tailwind to a headwind. Double-digits payment volume growth is assumed to continue in most parts of the world. In North America, growth rates are expected to slow down in the second half, as we lap strong debit growth in fiscal year '18 as well as the higher gas prices. International payments volume growth is forecast to stay strong and stable. Share gains in several markets are offset by slowing dual brand issuance in China. As always, cross-border growth is harder to forecast as we look four quarters out. Exchange rates, geopolitical factors and macroeconomic shifts will drive variability. Assuming current exchange rate expectations and no significant changes on other fronts, our outlook forecast a continuation of double-digit growth rates. There is an expectation that the dollar will weaken in the second half, driving an improvement in cross-border commerce inbound to the US. Pricing actions, which become effective in the third quarter of fiscal 2019 will also help drive second half International revenue growth rates higher than the first half. Processed transaction growth remained stable and healthy throughout fiscal 2018. Our outlook assume that steady growth will continue through fiscal year '19. Data processing revenue growth rates are expected to be higher during the first half due to the pricing actions in fiscal year '18 with a dip in Q3 as we lap these actions.

On the client incentive front, we ended the year with incentives in the fourth quarter as a percent of gross revenues at 21.7%. Our outlook for fiscal '19 is a range of 22% to 23%. The step up in incentives as a percent of gross revenue is driven by the full year impact of renewals and new deals signed in fiscal '18, as well as the renewals and new deals that we anticipate signing in fiscal year '19. Globally, we have a large number of renewals. As Al indicated, around 20% of our global payments volume is slated for this coming fiscal year.Based on our current expectations for the timing of client renewal, incentive growth rates are expected to be higher in the second and third quarters of fiscal '19 and lower than the full-year growth trend in the first and fourth quarters. We will of course provide updates as the year progresses. As you know, we make our best estimates for the terms and timing of renewals for the upcoming year, but client-specific consideration will determine actual outcomes. In terms of the currency translation impact, based on current rate and forward expectation, we project 100 basis point net revenue headwind for fiscal '19. This drag will be greater in the second and third quarters as we lap the tailwinds we enjoyed in fiscal year '18. And if forward curves are to be believed, the drag will be the lowest in the fourth quarter of fiscal '19. When you put all this together, our outlook is for low-double digit nominal net revenue growth in fiscal year 2019. We currently anticipate the impact of the new accounting standard on net revenue to be de minimis. If you incorporate what I just walked through, it becomes evident that the cadence of net revenue growth is not steady through the year. The highest growth for the year is likely in the fourth quarter and the lowest growth rate in the second quarter. In the second quarter, net revenue growth could be in the high-single digits, impacted by higher incentive growth, a larger exchange rate drag as well as lapping higher currency volatility in the second quarter of fiscal '18. The fourth quarter benefits from fiscal year '19 pricing action, as well as a lower drag from -- from both incentives and exchange rates.

On the expense front, we continue to invest in our business, partially funding these investment by shifting resources from lower priority areas and from savings we derive from better purchasing as well as other efficiency programs. In aggregate, fiscal year '19 operating expense growth, adjusted for special items in fiscal year 2018, is projected to be in the mid-to-high single digit range. This includes approximately 1.5 percentage points to 2 percentage points of additional reported expenses from adopting the new accounting standard. Expense growth cadence through the year will also fluctuate. Adjusted expense growth will be in the double-digits in the first quarter, in line with recent trends and then step down to mid-single digits for the remainder of the year. In fiscal year '18, expenses were lower in the first quarter for several reasons. Personnel expenses ramped up through the year as we added resources to drive our investment initiative. Incentive compensation accruals also stepped up through the year, in line with our operating performance. Also the additional 401(k) contribution and freedom expenses started in the second quarter of fiscal '18. We had higher marketing expenses in the second to the fourth quarter of fiscal '18, related to the Winter Olympics and the FIFA World Cup finals.In fiscal year '19, marketing expenses are expected to be higher in the first quarter.

Network and processing growth rates were elevated during the second half of fiscal year '18, as we ran parallel Europe Technology system. This will continue into the first half of fiscal '19 and will be lower in the second half as we complete the shutdown of the Legacy Visa Europe platform. Based on all of these factors, the adjusted expense growth rate is expected to be highest in the first quarter and lowest in the fourth quarter of fiscal '19. Some color on how the adoption of the new accounting standard ASC 606 will impact our reported fiscal year '19 P&L. Based on our assessment of existing contracts through September 30, 2018, we will reamortize some upfront payments that we expensed in prior years. This increases client incentive and reduces reported net revenues. Offsetting this reduction is an increase to gross revenues related to certain programs like market development funds, almost all on the other revenues line. Operating expenses related to market development funds will increase by the same amount; almost all in the marketing expense line, with no net impact on operating earnings. Other effects that we have estimated are the amortization of upfront payment we might make for fiscal year '19 renewals and new deals, which would have been expensed immediately under the old rule, which reduces client incentive. Finally, there's some client marketing expenses that we recorded in the incentives line and no longer in marketing expenses. Our best estimate of the net of all this is a de minimis impact on net revenues, higher other revenues offset by higher client incentives and 1.5 point to 2.0 point increase in operating expenses; almost all on the marketing expense line. As we have said many times before, this has no impact on the cash flow or economic value of our business. As required, we will report each quarter what the impact of ASC 606 was on our income statement.

Our adjusted tax rate for 2018 was 20%. This includes three quarters of the impact of a lower statutory tax rate as a result of US tax reform. Our FY '18 tax rate also benefited from an audit settlement and the successful resolution of several state tax initiative we have been working on for many years. Resolution of these items resulted in recording some benefits related to prior years, which will not recur. These non-recurring benefits lowered our tax rate in fiscal '18 by 1.5 points to 2 points. In fiscal year '19, we will have a full year of the lower US corporate tax rate, but awaiting final guidance from the Department of Treasury for the new provisions that go into effect in 2019, also known as the GILTI and FDII rules. In fiscal year '19, our tax rate will be lower by 1.5 points to 2 points from a full-year of the lower US corporate tax rate and our best estimate for the impact of the new provisions. This will offset the loss of nonrecurring benefits that were included in our fiscal year '18 results. Hence, our outlook projects a fiscal year '19 tax rate in the 20% to 20.5% range. Putting all these components together, our outlook is for nominal EPS growth in the mid-teens on an adjusted non-GAAP nominal dollar basis. This includes approximately 1 point of negative foreign currency translation impact. With net revenue and operating expense growth rates fluctuating from quarter-to-quarter, EPS growth rates will too. EPS growth rate, based on a combination of these assumptions, will be in the low-teens range in the second and third quarters and well above the mid-teens level in the fourth quarter. For the first quarter of fiscal 2019, our outlook is phenomenal net revenue growth in the low double-digits, double digit operating expense growth in line with recent trends and mid-teens adjusted EPS growth.

As always, there are risks to monitor. Exchange rate shifts of course, the possibility of a hard Brexit, economic dislocation like we had in Argentina and Turkey, geopolitical changes like trade wars et cetera. As we normally do, we will update our outlook when we talk to you each quarter.

Moving on to capital cash flow dividends and buybacks. Capital spending in fiscal '19 is likely to be around $800 million. This includes capital associated with hardware, support growth resiliency and cyber security and upgrade of our data center in the UK, investments in other facilities as well as capitalization of software from our technology development projects. Based on our earnings outlook and capital spending plan, free cash flow from operations is anticipated in -- to be in excess of $13 billion. Most of this free cash flow will be returned to shareholders in the form of dividends and buybacks. In fiscal '19, we anticipate returning at least $11 billion to shareholders in dividends and stock buybacks.

The Visa board has authorized a 19% increase in our quarterly dividend to $0.25 for the first quarter of fiscal '19. In line with our dividend policy, this puts our payout ratio in the 20% to 25% range. In fiscal '18, we completed additional buybacks to neutralize the impact from stock issued to Visa Europe owners as part of the acquisition. In fiscal year '19, we anticipate buying back at least $8.5 billion of Visa stock.

As a reminder, we will hit the three-year anniversary of the Visa Europe acquisition in June, 2019. In June, we will be making a cash payment of a little over EUR1.1 billion to the former owners of Visa Europe as per the terms of our acquisition agreement. We should also point out that as interest rates have risen, we're earning more investment income from our cash balances, which offset some of our interest expense. Both interest income and expense are recorded in non-operating income/expense.

In summary, as Al described with facts and figures, the Visa system continues to expand and thrive in a fast-changing payments landscape. As evidenced by our growth in fiscal year '18, the opportunity to digitize cash in new and different ways has never been better. With a tailwind of strong global economies and robust consumer spending, enhanced by the growth strategies that Al outlined, we look forward once again delivering on the revenue and earnings growth -- earnings growth you have come to expect from us.

With that, I'll turn this back to Mike.

Mike Milotich -- Senior Vice President of Investor Relations

Katie, we're willing to run 10 minutes long. So we have more time for questions. So with that, we're ready to get started with questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question today comes from Craig Maurer with Autonomous Research. Your line is now open.

Craig Maurer -- Autonomous Research LLP -- Analyst

Yes, hi, thanks for taking the time today. Two questions, first, what gives you confidence that the US dollar will start to retreat in the back half of the year, next year to put that guidance. And secondly, can you talk about yields on Visa Direct and push payments as we hear a lot of fast growth in that area going on globally from all networks. Thank you.

Alfred F. Kelly, Jr. -- Chief Executive Officer

Craig, it's Al. I'll take the second question and then I'll let Vasant take the first. We initially guided to Visa Direct, heavily in the P2P space where frankly, there's not a lot of economics, our yields there tend to be less than we would get on kind of normal Visa transactions. But as we move into some of these new use cases, we aren't expect to get yields that are similar to what we get in the kind of typical pull transactions that we do today. Let me ask Vasant to talk about -- what our view is on the retreating US dollar in the back end of the year.

Vasant Prabhu -- Executive Vice President and Chief Financial Officer

Yes, I don't think our crystal ball is any better than anybody else's, and so we don't really try to predict those things. We just look at forward curves and make some assumptions based on that. But the thing that happens, if in fact the dollar begins to weaken, let's say, in the second half, it will help us in certain corridors and it will hurt us in other corridors and there is a net effect of that. So even if it doesn't happen as we might -- as might be projected by forward curves, there are sort of normal balancing effects in the business. So it's not a one-way bet in the sense. So the dollar weakens, clearly we benefit from a translation standpoint would have given you sort of our best guess about a 100 basis points of impact on net revenue. On the cross-border side, we would benefit with the inbound corridor to the US, but on the other hand, we will benefit -- we'll be hurt -- we'll benefit in other parts of the world from the dollar weakening. So there's a lot of offsetting factors.

Mike Milotich -- Senior Vice President of Investor Relations

Next question?

Operator

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

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Thanks a lot, you covered a lot of ground in the prepared remarks, it's useful. I wanted to ask on the revenue outlook, you're calling for a low double-digit for fiscal '19. And this time last year, you guided to high-single digit growth, I believe and you landed at 12% (ph). So I'm curious, why you are more optimistic this year versus last year, is your visibility, perhaps a little bit better, is there a different level of conservatism maybe that you're baking in. Just curious to compare where you stand this year in your outlook versus this time last year. Thanks.

Vasant Prabhu -- Executive Vice President and Chief Financial Officer

Sure Tien-Tsin. Yes, as we normally do, we give you sort of our best sense of the upcoming year based on the facts we have available at this point in time. And if you looked at where we were at the end of last year, clearly the strength of the US consumer in particular ended up being stronger than we expected as you saw -- our debit growth was mid-single digits for quite a few quarters leading up to the year. And then starting in the second fiscal quarter of '18 we jumped into the double digits and have stayed there. So there were various elements of the business that clearly changed their growth trajectory after we gave you sort of the outlook for the year. So you could say that, things happened that was stronger than we expected, the global economy was stronger than we expected. In the second quarter and the third quarter in particular, the exchange rate tailwinds was stronger than we might have expected when we went into the year. So these things happen and we update you as we learn them. As we look ahead again, we're doing the same thing, we're giving you the best sense we have of the business as we enter the year. And therefore we give you as much color as we did as to what our assumptions are. Obviously, we'll update you as the year progresses. I know some people try to read into what we say, things like, they're being conservative, they want to leave room to raise it in the future and all that. And as we've told you all along, I mean, we give you our best sense at any point in time, we're not trying to be overly conservative, or otherwise. And this is our best sense as we stand today.

Mike Milotich -- Senior Vice President of Investor Relations

Next question?

Operator

Our next question comes from Don Fandetti with Wells Fargo. Your line is now open.

Donald Fandetti -- Wells Fargo Securities -- Analyst

Al, so, it's pretty interesting to see double-digit revenue growth coming again this year for a company that's at $300 billion market cap. I mean as you look out over the intermediate term, and you think about revenue growth, the model, do you still see the same secular contribution coming through as payments move away from cash because it's -- sometimes it's hard for us to sort of see when we might be at a tipping point given a lot of new technologies and payment initiatives coming in.

Alfred F. Kelly, Jr. -- Chief Executive Officer

Don, as you might guess, I'm not going to give a long-term forecast on revenue, we just kind of explain how we got to the number for just this year and its assumptions in that. That said, I'm quite confident in the business over a long period of time and we've got lots of different vectors on which I think we can continue to grow this business, whether it's by penetrating new payment flows, penetrating new segments, penetrating new geographies, bringing more of the unbanked around the world into the mainstream financial system. I think some of these capabilities that we are developing in terms of things like Visa Direct, some of the technologies that I think are enabling a better user experience at the actual moment when a user uses the card whether that's contactless or QR. And hopefully in 2019, the big change in e-commerce as we move to the secure remote commerce. So I think that there are just so -- a good number of growth vectors for that business that give me a good deal of confidence and our ability to continue to grow our volumes and as we grow our volumes, obviously, revenues should come along and so I remain confident about the future of Visa in terms of the volumes we can deliver.

Vasant Prabhu -- Executive Vice President and Chief Financial Officer

And just adding to that, I mean we've historically talked a lot about you might call our traditional payment flows, which is the B2C business -- B2B business, I'm sorry the consumer to merchant business, C2B and as you know that we believe there's a lot of opportunity there to continue to digitize cash and increase PC penetration, but increasingly as Alf said -- it's these new payments flows as we call them that are enabled by things like Visa Direct, which would be B2B and disbursements which is B2C that we're getting increasingly excited about. And then, of course, Visa Direct also enables many elements of B2B and G2C, government to consumer and then B2B remain a huge opportunity, we are already close to $1 trillion in payment volume there and we would like to see it grow much faster than, let's call it our core consumer to C2B business.

Mike Milotich -- Senior Vice President of Investor Relations

Next question?

Operator

Our next question comes from Harshita Rawat. Your line is now open.

Harshita Rawat -- Bernstein -- Analyst

Hi, good afternoon. Thank you for taking my question. I want to ask about emerging markets. There appears to be a lot happening on the ground in some of these markets with government involvement, new domestic schemes in certain instances almost a new fast ACH and API infrastructure. So my question for you is, how should we think about your ability to quickly adapt in these very rapidly evolving markets and is there anything you need to do on the pricing partnerships or technology front.

Alfred F. Kelly, Jr. -- Chief Executive Officer

Well, Harshita, many of these emerging markets which are -- where there is clearly lots of dynamics that you talk about, you know, Visa has been on the ground in these markets for, in many cases multiple decades and we've got experienced teams in those markets. And I think if I put China aside, where we actually still don't have a domestic license but we look at some of the countries in Asia, some of the countries in South America, some of the countries in Africa, we, I think, have had a market leadership position and we, I think we'll continue to look to forge both good partnerships with people where (ph) it makes sense. The reality is the payments ecosystem is hugely about partnerships already.

And I think, as I look forward, it will be even more partnerships some of the FinTechs really take hold and provide various value-added services. We are committed to VisaNet. We think is the best network in the world in addition to being the biggest in the world. We continue to invest in it, in big ways, and we'll continue to invest in it. That said, we are very pragmatic people and to the degree that there are other rails that Visa transactions might or Visa credentials might be used on where we can do something in partnership where perhaps is of various value-added services, we might be able to still provide even if a transaction is it running on our rails, we'll be committed to do that. So I think that we are going down multiple paths where we are both trying to continue to strengthen the assets we have today starting with our network, but also the investment in lots of capabilities we're doing, but we're also going to be smart about partnering where partnering makes sense. We are committed to try to be in the middle as many payment flows as possible and if we can control -- if we can have the full control of that payment flow grade if in some cases, we're participating in it as a partial player that's also fine as well. So I think that we are well positioned. If you look at India as one case study, that's the market, we've been in for 35 years. We've got a big team on the ground there. And we continue to be the market leader, even though there's lots of activity going on there in terms of both government intervention as you talk about, as well as, new -- new players that are emerging.

Mike Milotich -- Senior Vice President of Investor Relations

Next question?

Operator

Our next question comes from Darrin Peller with Wolfe Research. Your line is now open.

Darrin Peller -- Wolfe Research -- Analyst

Okay, thanks guys. Look, I know there's some pricing initiatives of the Company and you touched on the anniversary sum in '19, but maybe you could just help us understand from a cadence standpoint, what kind of benefit we could have through the year and then, Al, just higher level -- higher level maybe between Europe and other areas, do you see similar pricing opportunities in '19 and '20 that you saw in '18. I mean, especially on the back of Europe front-end integration being done now, do you have some room there. Thanks.

Alfred F. Kelly, Jr. -- Chief Executive Officer

So, Darrin. I'd say two things, one is you know both Vasant and I have been clear about what we see in terms of pricing in Europe. The second thing I'd say is that we have had a long-standing policy of not getting involved in permit (ph) for many reasons including competitive reasons in forecasting specific pricing actions that we would take and where we would take them geographically and in terms of, on the network. And I think, we're going to revert back to not commenting on, specific pricing plan on a going forward basis, but obviously that said, we recognize that it's an important lever.

Vasant Prabhu -- Executive Vice President and Chief Financial Officer

Yeah, and our plans for '19 include pricing. There is carryover pricing from '18 that flows into the first half of '19 and as I said in the comments earlier, we have some pricing coming in, in '19. And so order of magnitude across the -- across the whole business. There is about similar kinds of pricing between the two years.

Mike Milotich -- Senior Vice President of Investor Relations

Next question.

Operator

Our next question comes from Lisa Ellis with MoffettNathanson. Your line is now open.

Alfred F. Kelly, Jr. -- Chief Executive Officer

Lisa?

Lisa Ellis -- MoffettNathanson -- Analyst

Yeah, sorry. Good afternoon, guys. My questions about Visa Direct. Like to see the strong metrics there year-on-year. Can you give an idea of -- so you highlighted use cases associated with P2P disbursements, some B2B use cases. Can you give a sense for, is there a pathway and what does it look like to using Visa Direct for things like bill pay or even in more traditional merchant transactions, particularly in geographies where there's incumbent fast ACH networks where that type of push payment is already heavily in use for those types of transactions. Is that a focus area? And can you give a sense for like what that -- what that timeline or that pathway looks like?

Alfred F. Kelly, Jr. -- Chief Executive Officer

So we already do Lisa, have some bill pay use cases that are happening in different geographies around the world. And again, our view is that by reversing the typical way that our network works that we, we have lots of opportunity in lots of different use cases and we've got a dedicated team, that's spending a lot of time thinking about bill pay P2P, disbursements and faster payments to merchants. I think those are kind of the four primary businesses that at the moment that we can see ourselves playing in terms of Visa Direct. And specifically, on bill pay, we -- I know both in Singapore and in India, we have use cases going on right now.

Mike Milotich -- Senior Vice President of Investor Relations

Next question.

Operator

Our next question comes from James Faucette with Morgan Stanley. Your line is now open.

James Faucette -- Morgan Stanley -- Analyst

Great, thank you very much. I just wanted to ask a point of clarification, first on I think -- so you mentioned that there is 20% of your total volume that's up for renewal in 2018. You touched on its impact on incentives but as a general rule or how is that compared to previous years, or at least what has it been the last few years on by comparison, just to contextualize a little bit. And then Al, I want to follow up on the questions related to new technologies and partnerships. When you look at some of the things that you've rolled out like the recent announcement of B2B connect et cetera. How close are you working with your partners to visualize and then pushed about note of new initiatives? And I'm wondering, how much is like being pulled from (inaudible) from your partners, as they look for opportunities just trying to get a sense as how receptive the market may be at some of these (inaudible).

Vasant Prabhu -- Executive Vice President and Chief Financial Officer

I'll take the first one and Al, I think is going to answer the second one. In terms of the renewal kind of tempo, FY '17 -- fiscal year '17 and '18 was heavy in Europe. As Al -- as we've been saying, we opened up 100 contracts, more than 100 contracts and redid them, and you saw that in some of the client incentive movements, '16, '17 and '18 and the rest of the world was somewhat lower than the 20% pace. So 20% inclusive of Europe is probably more of a little higher than the last couple of years on a global basis, but '15 was a bigger year from a -- from a renewal standpoint. So that gives you some flavor for it. I mean, our average contracts run from three years to seven years, typically, and so the -- it's about five years is a decent estimate. So 20% is getting more to par for the course.

Alfred F. Kelly, Jr. -- Chief Executive Officer

James on the second question related to new technologies. First of all, I'd say that we try to be very client and end consumer/business owner-centric in all we do. We don't just try to come up with capabilities and technologies for the sake of having them, we want and are only interested in creating capabilities and products that we think solve a particular problem or fill a particular need in the payment ecosystem. That said, there are cases where we are sometimes being pushed by our clients to move faster and there cases where we are pushing or pulling our clients along, asking them to come along more quickly. Credit, and by the way for the same capability of the same product, we can have each of those cases at different clients. So we can have some clients who are -- we have to pull along and some are pushing for us to move faster. So a constant communication and an open stream of dialog is critical in these cases. And we try to sit with clients, particularly our biggest clients and give them a sense of what's in our product pipeline, what are we thinking about -- over the next year or two year. So that they have some transparency into what we're thinking. Because so often we need them to come along, because often, one of the things that is on the critical path of progress is them opening up their tech cues (ph) and making sure that they are doing whatever changes, they need to make to accommodate some capability of product that we're putting into the marketplace.

Mike Milotich -- Senior Vice President of Investor Relations

Next question?

Operator

Our next question comes from Sanjay Sakhrani with KBW. Your line is open.

Sanjay Sakhrani -- Keefe, Bruyette & Woods -- Analyst

Thanks. Quick question on the China dual card spending volumes. I was under the impression that the conversion to two cards had stopped. Is that not the case anymore because you guys mentioned that weakness. And then secondly, on these tokenization partnerships, I guess when we think about what the longer-term or even intermediate-term benefits are, are there specific pilots that you will launch around those partnerships or any economic benefits? Thanks.

Alfred F. Kelly, Jr. -- Chief Executive Officer

On the first question, Sanjay. There are definitely a good number of our Chinese bank partners, I don't know how many, we have 55, I think, 56 China bank issuer partners, and a good number of them are still issuing dual badge card. So, yes, that's still happening. On the tokenization partnerships, look this is something we are very committed to. We have always taken a lead in trying to make sure the payment ecosystem is as secure as it possibly can be, and getting to a point where payment credentials are codified in a different way using tokens versus the actual card number. We believe is critical to the infrastructure. My personal belief by getting these other -- these large token requesters on board now and getting to the point where we have 60 very strong token requesters in 40 markets around the world is going to start triggering some key merchants to start moving the tokenization -- tokenizing their card on file, pay ends from today. And I think like everything in life that this is one of those things that if we can build some momentum, which I think we can, that it will really start to take off. But clearly, like everything again, you need some tipping point where the momentum really start to take off and you move from kind of pushing an initiative uphill to watching it roll downhill. And I think in the case of tokenization, we're probably still trying to push it up the hill a little bit, but I feel like we're close to the top of the hill and we'll start seeing it roll down the hill as key merchants get enabled by these -- these token requesters that we recently signed.

Mike Milotich -- Senior Vice President of Investor Relations

Okay, last question, Katie.

Operator

Our final question today comes from Moshe Orenbuch with Credit Suisse. Your line is open.

Moshe Orenbuch -- Credit Suisse Group AG -- Analyst

Great, thanks. Most of my questions actually been asked and answered, but Al, maybe you could just elaborate a little bit on the last point, and what are the types of transactions that you wouldn't see getting running over the network today because of that not having that tokenization partnership and how would you see that developing over the next year or two year.

Alfred F. Kelly, Jr. -- Chief Executive Officer

I think they are two unrelated things. I mean there, -- you look at as big and as broad and as large as our network is, we are not connected to every single bank account around the world. And so I think that there could be cases certainly as it relates to the movement in certain markets toward realtime payments where we are doing something in partnership with another set of rails. I think as we do that one of the things we will bring to the party among many capabilities that we uniquely have on our network will be tokens. But there'll be other capabilities that we bring along as well, including the fact that we're global, including the fact that we have rules that handle things like disputes and charge backs, including the fact that we've got a great array of risk and fraud tools that we can bring to the party. So that's how I think about it, Moshe.

Mike Milotich -- Senior Vice President of Investor Relations

We'd like to, so I think that's it. We'd like to thank you for joining us today. If you have any additional questions feel -- please feel free to call or email our Investor Relations team. Thanks again and have a great day.

Operator

That concludes today's conference. Thank you for your participation. You may disconnect at this time.

Duration: 70 minutes

Call participants:

Mike Milotich -- Senior Vice President of Investor Relations

Alfred F. Kelly, Jr. -- Chief Executive Officer

Vasant Prabhu -- Executive Vice President and Chief Financial Officer

Craig Maurer -- Autonomous Research LLP -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Donald Fandetti -- Wells Fargo Securities -- Analyst

Harshita Rawat -- Bernstein -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Sanjay Sakhrani -- Keefe, Bruyette & Woods -- Analyst

Moshe Orenbuch -- Credit Suisse Group AG -- Analyst

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