Letter to Our Shareholders

By any measure, 2008 was momentous for Visa. It was a year when, in spite of the extraordinarily diffifi cult economic climate, we executed a historic initial public offering. This was a milestone that marked the successful completion of our corporate reorganization and transition to a global public company—Visa Inc.

I am pleased to report that in fifiscal year 2008, Visa Inc. recorded excellent results:

• Adjusted net income was US$1.7 billion
• Net operating revenue was US$6.3 billion
• Total volume on 1.6 billion cards was US$4.2 trillion, a 20 percent increase over the prior year

Visa’s strong performance in 2008 reflects a number of factors.

First, our business—electronic payments—has shown resiliency even in the midst of the current global economic turbulence.More consumers, businesses and governments are shifting spending to electronic payments, away from cash and checks, to take advantage of the convenience, reliability and security Visa offers.

This is one reason that payments volume has grown across our core business—credit, debit and commercial products—and in all regions in which Visa operates. Our performance underscores the strength of Visa’s network business model and our ability to capitalize on the secular shift to electronic payments.

Second, I am particularly pleased by and appreciative of the continued support of our financial institution clients, who are driving the growth of our network of cardholders, merchants and businesses worldwide. Our relationship with these vitally important stakeholders has grown stronger in the past 12 months, as evidenced by the number of fifinancial institutions globally that have chosen to partner with Visa.

What I hear from my conversations with these clients is clear—they are extremely concerned about the global economic crisis and are looking to areas of their business that can continue to deliver profifitable growth. As we seek to expand Visa globally in 2009, we are mindful that our products and services are engines of growth and profifitability for our clients, many of whom are facing increased fifinancial strain.

Therefore, as a global public company, we have committed ourselves to building a more client-centric culture and upgrading our sales organization to better serve our fifinancial institutions’ rapidly evolving needs. As someone who spent many years at Visa card-issuing banks, I recognize that our clients’ success drives Visa’s success.

DRIVING OUR CORE BUSINESS
Our core business—credit, debit and commercial—grew signififi cantly during 2008.

Our credit volume saw an increase of nearly 16 percent, to US$2.0 trillion, and debit continues to lead the migration from cash and checks, with payments volume of  US$918 billion, an increase of 18 percent.

In addition, international and cross-border debit and credit volume grew during the year.

We believe that, despite the global economic turmoil, the rise of the middle class in developing economies around the world will provide us with long-term opportunities in this area.

As we entered the 2009 fifi scal year, we announced the creation of Visa Processing Service, a joint venture with Yalamanchili Software Exports (P) Limited that is enabling Visa to quickly and cost-effectively extend our issuer processing capabilities into new geographies. VPS complements Visa’s Debit Processing Service in the U.S., offering our international clients access to Visa’s industry-leading processing and value-added services in some of the fastest-growing payments regions in the world. These include Brazil, India, Russia, and Gulf region countries such as Saudi Arabia and the United Arab Emirates.

Visa’s leadership in debit has been a pillar of our performance as we continue to capture a greater share of everyday spending from cash and checks, particularly in the U.S.

In 2008, we signed an expanded agreement with HSBC to become its exclusive debit partner in 20 countries and territories across Asia Pacifific and the Middle East. We also signed a global debit agreement with Royal Bank of Scotland Group PLC. As part of the agreement, RBS and its subsidiaries, including Citizens Financial Group in the U.S., will convert their entire debit portfolio to Visa. These business wins speak not only to the strength of our debit business but also to our superior approach to client service.

In fiscal 2009, debit remains an integral part of Visa’s long-term growth strategy as we help our fifinancial institution partners build stronger relationships with their customers. At the same time, we believe that credit, particularly in key developing economies, has a long way to go before it reaches its full potential. Visa, with our leadership in credit, is particularly well positioned to take advantage of this trend when the global economic recovery begins in earnest.

PREPARING FOR THE FUTURE
Earlier this decade, Visa set out to map the future of the organization in an increasingly competitive world. It became clear to everyone that unlocking Visa’s full potential would require a reorganization of unparalleled scope. We believed that by combining fifi ve of our geographic regions into one publicly traded company, Visa and our stakeholders would be better positioned to capture a greater share of consumer and business spending.

Our performance since the reorganization in 2007 and the IPO last March suggests we are on the right path.

• We have assembled a world-class management team that combines extensive payment expertise with significant experience running publicly-traded companies.
• We have assembled a majority-independent board of directors that provides us with broad experience across the financial industry, strong guidance and independent voices to ensure Visa remains resilient and responsive.
• We have enhanced our global client service capabilities.
• We have made signifificant operational changes in order to maximize efficiencies, lower our costs, lower our tax rate and take a global view of investing our resources for maximum return to our clients and our business.
• We have embraced our role as a responsible corporate citizen by launching a robust corporate responsibility program aligned with our business strategy and expertise.
• We have continued to grow our share of electronic payments, migrating more spend away from cash and checks through our core debit and credit products.
• In 2007, 18 percent of personal consumption expenditure worldwide was conducted on a Visa card, compared with 11 percent in 2001.
• We have now resolved all outstanding disputes with our major competitors— MasterCard, American Express, First Data and Discover—which allows us to focus our attention on the future. In November 2007, we settled litigation with American Express that had been pending since 2004. In October 2008, we resolved
  our dispute with Discover Financial Services. I am particularly pleased that these settlements were funded pursuant to our retrospective responsibility plan, with little impact to Visa’s shareholders. In return for a contribution to the Discover settlement, Visa also obtained a full release for unasserted claims by MasterCard.

EMPOWERING PEOPLE, BUILDING ECONOMIES
Our ability to grow our business during each of the past 50 years illustrates the value our products bring to every participant in our network. The street vendor in Brazil who recently began accepting Visa saw his sales increase by 20 percent.

The businessman in Mumbai, India, who uses VisaMoney Transfer can now send money securely to his mother in Calcutta from his Visa account to her account in a matter of seconds via the Internet. And the woman in Indiana who receives her benefifits payment on a Visa prepaid card is now freed from the hassle, cost and disruption of traveling to a check-cashing facility. Now she can use her Visa prepaid card at any of the 29 million-plus merchant outlets and more than 1.4 million ATMs worldwide that accept our products.

As we grow our business globally, it is worth pausing to acknowledge the value we can bring to individuals, businesses and governments by simply providing them with access to secure, convenient and reliable payment products and reducing their reliance on cash and checks. This echoes Visa’s original vision of providing people with a better way to pay and be paid.

LOOKING FORWARD WITH CONFIDENCE
Despite the economic turbulence we face today, I remain optimistic about Visa’s future. While we have enjoyed tremendous success and growth over the past 50 years, electronic payments account for a relatively small percentage of global consumer and business spending. Few industries of our standing enjoy that kind of potential— and even fewer companies have the strengths Visa has to take full advantage of it.

Consider that, in most markets in which we operate, cash and checks represent more than 50 percent of personal consumption expenditure. This is particularly true in many of the developing parts of the world. As those regions grow as a result of rising incomes, globalization of commerce and increased travel, so too will their need for full participation in the global economy. Electronic payments can meet that need. Our most important task at Visa will be to connect these consumers and businesses to our global network of cardholders, merchants and fifinancial institutions.

At Visa, we are not relying on organic growth. We are pushing forward aggressively with strategic initiatives that will accelerate our business and the entire industry. First, we are seeking to globalize our debit offerings to replicate the leadership we have enjoyed in the U.S. for many years. At the same time, we are looking to capture a greater share of this growth on our network by improving our local processing activities in key markets.

We recognize that in a network business, increasing the size and activity of each stakeholder group is critical. For that reason, we are seeking to expand acceptance globally and increase usage at the point of sale by delivering demonstrably better value than any other payment alternative.

Capturing more payment volume will require investments in innovations such as prepaid, mobile and money transfer that harness the strength of our network and our brand.

Finally, we plan to preserve and nurture our local market expertise while increasing our organizational effectiveness as a single public company. This will manifest itself in more coordinated and consistent pricing policies, as well as world-class risk management, controls and operations. Importantly, it will allow us to grow, reward and retain the very best talent.

In light of the ever-changing global economic environment, we are prepared to adjust our operations to ensure we deliver on the targets we set for ourselves and our shareholders. At the same time, we continue to invest in our core assets—our brand, systems, products and strong relationships with our clients—to position us well for the future.

Joseph W. Saunders
Chairman and Chief Executive Officer
Visa Inc.

Download Visa Inc. Annual Report 2008

PDF format, 11MB, 264Pages.

Overview
Visa operates the world’s largest retail electronic payments network and manages the world’s most recognized global financial services brand.

We have more branded credit and debit cards in circulation, more transactions and greater total volume than any of our competitors. We facilitate global commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities. We provide financial institutions, our primary customers, with product platforms encompassing consumer credit, debit, prepaid and commercial payments.

VisaNet, our secure, centralized, global processing platform, enables us to provide financial institutions and merchants with a wide range of product platforms, transaction processing and related value-added services. Based on the size of our network, the strength of the Visa brand and the breadth and depth of our products and services, we believe we are the leading electronic payments company in the world.

Our business primarily consists of the following:

• we own a family of well known, widely accepted payment brands, including Visa, Visa Electron, PLUS and Interlink, which we license to our customers for use in their payment programs;
• we manage and promote our brands for the benefit of our customers through advertising, promotional and sponsorship initiatives and by encouraging card usage and merchant acceptance;
• we offer a wide range of branded payments product platforms, which our customers use to develop and offer credit, debit, prepaid and cash access programs for cardholders (individuals, businesses and government entities);
• we provide transaction processing services (primarily authorization, clearing and settlement) to our customers through VisaNet, our secure, centralized, global processing platform;
• we provide various other value-added services to our customers, including risk management, debit issuer processing, loyalty services, dispute management and value-added information services;
• we develop new products and services to enable our customers to offer efficient and effective payment methods to their cardholders and merchants; and
• we adopt and enforce a common set of rules adhered to by our customers to ensure the efficient and secure functioning of our payments network and the maintenance and promotion of our brands.

Industry Overview
The Global Payments Industry
We operate in the global payments industry, which is undergoing a major shift from paper-based payments, such as cash and checks, to card-based and other electronic payments.

For more than 30 years, Visa has played a central role in driving this migration by providing payment products and services that we believe deliver significant benefits to consumers, businesses, governments and merchants. We believe that consumers are increasingly attracted to the convenience, security, enhanced services and rewards associated with electronic payment forms. We also believe that corporations and governments are shifting to electronic payments to improve efficiency, control and security, and that a growing number of merchants are accepting electronic payments to improve sales and customer convenience.

The global payments industry consists of all forms of payment and value transfer, including:

• paper-based payments—cash, personal checks, money orders, government checks, travelers cheques, official checks and other paper-based means of transferring value;
• card-based payments—credit cards, charge cards, debit cards, deferred debit cards, ATM cards, prepaid cards, private label cards and other types of general-purpose and limited-use cards; and
• other electronic payments—wire transfers, electronic benefits transfers, automated clearing house payments and other forms of electronic payment not typically tied to a payment card or similar access device.

We believe that the shift to electronic payment forms is a worldwide phenomenon; however, in many developing countries, it is at an early stage and will be accelerated by globalization of commerce and increased travel. Recent innovations such as contactless cards and mobile payments are also increasing the attractiveness of electronic payments. We believe these trends create a substantial growth opportunity for the global payments industry.

The most common card-based forms of payment are general-purpose cards, which are payment cards that permit widespread usage. General purpose cards are typically categorized as:

•  “pay now” cards, such as debit cards, which enable the cardholder to purchase goods and services by an automatic debit to a checking, demand deposit or other current account;
•  “pay later” cards, which typically permit a cardholder to carry a balance in a revolving credit account (a credit card or deferred debit card) or require payment of the full balance within a specified period (a charge card); and
• “pay before” cards, such as prepaid cards, which are prefunded up to a certain monetary value.

The primary global general purpose card brands include Visa, MasterCard, American Express, Discover, JCB and Diners Club. While these brands—including Visa—were historically associated primarily with credit or charge cards in the United States and other major international markets, Visa and others have over time broadened their offerings to include debit, ATM, prepaid and commercial cards.

In addition to general purpose cards, a number of retailers and other entities issue limited-purpose credit, charge and prepaid cards that can be used for payment only at the issuing entity. These cards are generally referred to as private label cards. Private label cards are sometimes issued by a financial institution under a contractual agreement with the retailer.

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