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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Visa's Fiscal First Quarter 2018 Earnings Conference Call. All participants are in a listen-only mode until the question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.
I would now like to turn the conference over to your host, Mr. Joon Huh, Vice President of Investor Relations. Mr. Huh, you may now begin.
Thanks, Athena. Good morning, everyone, and welcome to Visa Inc.'s fiscal first quarter 2018 earnings conference call. Joining us today are Al Kelly, Visa's Chief Executive Officer; and Vasant Prabhu, Visa's Chief Financial Officer.
This call is currently being webcast over the Internet and is accessible on the Investor Relations section of our website at www.investor.visa.com. A replay of the webcast will be archived on our site for 90 days. Our slide deck containing the financial and statistical highlights of today's call have been posted to our IR website.
Let me also remind you that this presentation may include forward-looking statements. These statements are not guarantees of future performance, and our actual results could materially differ as the result of a variety of factors. Additional information concerning those factors is available on 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 Visa's website. For historical non-GAAP or pro forma related financial information disclosed in this call, the related GAAP measures and other information required by Reg G of the SEC are available in the financial and statistical summary accompanying today's press release.
And with that, let me turn the call over to Al.
Joon, thank you, and good afternoon to everybody and thanks for joining us today. As always, Vasant and I are going to make some relatively brief comments on our results and then we'll open up to whatever questions you have on your minds.
We're off to a solid start in our fiscal year and I'm pleased with our company's performance this past quarter. Our performance was driven by healthy economies around the world, growth and acceptance in the continue rise and E&M commerce, especially in developed countries. U.S. tax reforms certainly has and will continue to impact our business in positive ways. We have made a few initial decisions about our investments as a direct result of the lower corporate tax rate and we continue to talk about it, analyze additional incremental spending options to both, to our talent, our business, and the communities in which we work; all with the goal of fulfilling our corporate mission of helping individuals, businesses and economies thrive.
Looking at our business drivers, payments volume grew 10% on a constant dollar basis as we saw healthy growth around the globe. The Central Europe, Middle East region led the way with 19% growth driven by the Gulf countries of the Middle East. Latin America was up 14% with particular strength coming from Argentina, Canada grew 11%, up 4% sequentially resulting from high gas prices and increased spending in retail and telecom. In the United States payments volume grew 10% driven by increases in consumer credit and holiday spending which I'll spend a few minutes on a bit later. Europe maintained a solid growth rate of 9% with strength coming from Turkey and Southeast Europe, and Asia Pacific grew 8% as we saw improved volumes from Australia and Taiwan. And although we're partially lapping that demand utilization in India, total process transactions continue to grow at double-digit rate of 12%.
Turning to the financial metrics, net revenue grew 9% driven in part by strong holiday season and accelerating ecommerce growth. We saw good momentum in our cross-border business with revenue growth of 12% in constant dollar, volume growth of 9%. Despite the lapping of Brexit and a stronger currency dynamic, the European cross-border business performed better than we expected. In United States we saw a sequential increase in cross-border growth resulting from increased inbound activity as the dollar remained relatively weak throughout the quarter and the weak dollar trend has continued into the first few weeks of this quarter.
Client incentives were 21.4% of gross revenue, roughly in line with the prior quarter. As we discussed in the last call, we're making significant investments in our business initiatives and our strategic priorities leading to increased expense levels in the quarter. And with the new U.S. tax reform in place, a portion of the benefit is reflected in our fiscal first quarter results, this will led to adjusted EPS growth of 26% which includes the benefits from tax reform. Vasant will go into greater detail in the impact of tax reform and provide more background on the numbers.
Now let me provide some more color on the subject of U.S. holiday spending. The 2017 holiday season was stronger than the prior year as both consumer credit and debit grew at higher levels. Growth was driven by better performance in retail and entertainment which includes movies, gaming, fitness, sporting goods, recreational activities. Additionally, higher gas prices contributed to some of the growth. Both offline and online volume had higher growth rates than the prior year with online growing approximately four times faster than offline. During the holiday season, ecommerce continued to gain share jumping to over 30% of consumer U.S. holiday volume. Ecommerce growth was strong across a number of categories but was more significantly strengthened by retail performance.
Interestingly, the retail spending was stronger earlier in the holiday season, the couple of weeks prior to Thanksgiving and Thanksgiving week looked quite a bit stronger than the growth we saw in the prior year. Beyond the U.S. when we look at some of the other markets and their holiday seasons, growth was better than last year in Brazil, Australia and Canada, that was essentially flat in the United Kingdom.
Turning to our business activity, we had another business quarter for announcements; we are very pleased to expand our global leadership position in the co-brand arena with the launches of the Starbucks and Uber programs. Additionally, we renewed our strong and long-term partnership with Marriott. Additionally, we had a good pipeline of renewals across the world. We also advanced our digital products, most notably; we announced the part issue with Facebook in October as they joined our Visa digital enablement program to use our token service to accelerate payment services on the digital properties. With this partnership Visa clients used on Facebook Messenger who now be tokenized and therefore the account numbers are not exposed. This partnership furthers our efforts to encrypt and devalue payment information in the payments ecosystem. Additionally, this partnership advances our effort to enable and develop new digital commerce experiences as consumers spend more time in messaging environments like Facebook.
In November we launched Visa Direct in Europe which provides real time push payment solutions for person to person, business to business and business to consumer applications leveraging our global network. The advantage of Visa Direct is that it utilizes our existing network connections, rules, operations and key controls that are built into the network such as transaction limits and sanctions screening. Because of this tactical and operational leverage, the time and cost of implementation is lower than many alternative options. As we stated previously, we believe that Visa Direct is a key product to enable fast payments across Europe.
More recently, we initiated a small pilot for new biometric cards for contactless payments which provides an alternative to pin or signature authentication. This is the first commercial pilot to test an on-card biometric for contactless payments. We're committed to ensuring secure, fast and convenient payments at the point of sale. And core to delivering on this commitment is to continually evolve the marketplace in terms of dynamic authentication methods such as EMV chip and an indication of these pilots investing in emerging capabilities that leverage biometrics.
As we stated before, we always want to make strategic investments that will drive long-term growth for our business, with that objective we're making investments in the area of contactless transactions and authentication methods as this is the natural evolution following the adoption of the EMV infrastructure. Consumer research and internal data has shown that there is a strong interest for contactless payments as it creates a faster and more convenient experience at the point of sale. We've seen significant adoption in markets like Australia, UK and Canada and we hope to increase adoption in other markets. We're especially excited about the U.S. market given the build out of the EMV infrastructure that will allow us to go with the market forward and towards contactless transactions.
Echoing my earlier remarks, the recent tax reform will create benefits and opportunities for our business. We're exploring the range of options and we're prioritizing long-term sustainable investments versus one-time actions. One of the areas we're most focused on is our employees and talent development as this is the foundation of our business. As the first step we enhanced our benefits for U.S. based employees and increased our company contribution to the U.S. 401(k) program given the importance of retirement planning. This allows U.S. employees to enjoy a sustained benefit consisted with the ongoing contribution that they make every day to build our business for our clients, partners and shareholders.
Additionally, we're exploring other global benefits and investments for our business around the world. Throughout the year we will continue to make strategic investments in our people and the areas of digital products, technology operations and merchant solutions as we position the company for long-term sustainable growth. Additionally, in light of tax reform, the board increased the quarterly cash dividend to $0.21 per share, ultimately using funds to grow our business organically however is the top objective for our capital allocation here at Visa.
Last year we evolved our global social impact strategy and announced the formation of the Visa Foundation. Funds available through the foundation will help drive real progress across the world with a primary focus on helping micro and small enterprises thrive through access, growth and resilience. I'm pleased to say that the foundation made an inaugural grab to this past quarter to the Women's World Banking; this grant will help support the millions of women-led small and micro enterprises which are underserved financially around the world.
Let me spend a few minutes on the international front. In Europe we are making good progress on our ongoing integration efforts and identifying areas for growth. We're working closely with our clients as we've now resolved over 80% of the contracts moving to commercial incentives. In terms of the tactical integration we expect Visa net migration to begin this quarter and continue throughout 2018. We have planned carefully with our clients to ensure the highest standards of preparation and testing for the months leading upto the migration with regular update with the business leaders to ensure a smooth and stable migration. Once the migration is completed, we'll be able to deliver new products, services and capabilities to the region bringing the best of our global capabilities to our European clients.
As I mentioned on the last call, I was going to spend additional time with the European leadership team in planning and strategy meetings this past quarter. Having spent 3 of the last 6 weeks in Europe, it reinforced my belief that there is still meaningful growth opportunities in the region. Few remarks about India; we have a market leading position in debit and credit with significant share in both categories. After partially lapping the impact of demonetization, we saw domestic payments volume grow over 20% and process transactions grow 12% in the past quarter. We continue to engage with the regulators, the government and our clients to ensure sustainability of the economics and we are investing and partnering with issuers, acquirers and the government to grow electronic payments. We have crossed 3 million acceptance points and are working to scale up contact list and broad QR usage and acceptance points.
As we look at our capital allocation plans, our top priority as I said earlier continues to be investing for the future growth of our business to deliver shareholder value. In addition though, we remain committed to returning capital to our shareholders. In fiscal Q1 we returned $2.2 billion of capital consisting of $1.7 billion of share repurchases and nearly $460 million in dividends. As I stated on our last call, we expect to return over $9 billion of capital to shareholders this fiscal year. I already talked about the dividend increase to $0.21 per share; the Board on Tuesday also authorized an additional $7.5 billion share repurchase program resulting in a current authorization level of $9.1 billion.
In closing, we're off to a solid start to our fiscal year. I'm pleased with our consistent business execution and excited about the many growth prospects we had. And with that, let me turn it over to Vasant who will cover some of the financial details.
Thank you, Al. We had a solid start to fiscal year '18 with GAAP EPS growth of 25% and adjusted EPS growth of 26%. Implementation of the tax cuts and jobs act added approximately 9 percentage points to this adjusted growth rate which I will discuss in more detail in few minutes.
Excluding the impact of U.S. tax reform, EPS growth was 17%. Net revenue growth was 9%. Growth of key business drivers, payments volume, cross model volume and process transactions remained strong and stable across the globe. As a reminder, several significant factors have a meaningful impact on year-over-year revenue growth comparisons this quarter. First, and by far the most significant factor, rebates to Visa Europe members ended beginning in the first quarter of fiscal year '17, so this is the first quarter of apples-to-apples revenue growth comparisons for Europe. This affects reported service fees, data processing and international revenue. We are also at apples-to-apples growth comparisons for Costco and USAA credit.
The India demonetization impact started in November 2016, so we partially lapped that in Q1 and finally, fiscal year '18 price increases which are smaller in scope than fiscal year '17 increases will go into effect in the second half of the year. In fiscal year '17 our U.S. price increase went into effect in the first quarter and international increases went into effect mostly in the second quarter.
A few other items of note; we bought back 15.5 million shares of Class A common stock at an average price of $110.67 or $1.72 billion this quarter. Our board has authorized a new $7.5 billion share repurchase program, including this additional authorization we now have $9.1 million available for share repurchases. In addition, our board has increased the quarterly dividend to $0.21 per share at almost 8% increase commensurate with higher earnings potential of the company post tax reform. This is in addition to the 18% increase in the dividend last quarter. Finally, in October 2017 we used the proceeds from our September debt offering to redeem the $1.75 billion of senior notes scheduled to mature in December 2017.
A quick review of the key business drivers in the fiscal first quarter; payments volume on a constant dollar basis grew 10%, even the growth from Costco and USAA credit on an apples-to-apples basis, U.S. growth accelerated one point increasing from 9% in the fourth quarter to 10% in the first quarter; this reflects solid underlying growth from a strong holiday season, particularly in the credit business. Credit was up 11%, debit was up 8%, adjusted for conversions, underlying growth rates for both credit and debit stepped up. As Al described, we saw higher growth in consumer payments volume this holiday season driven by acceleration in retail and entertainment spending, especially online, as well as rising gas prices.
International payments volume growth in constant dollars was stable at 10%. Growth rate stepped up in Canada, Australia, across Latin America and the Middle East. The rate of decline in Chinese dual branded card volumes slowed, this was offset to some extent by the impact of lapping India demonetization. Cross-border volume on a constant dollar basis grew 9%, this is one point lower than the fourth quarter of fiscal '17, primarily due to the drag from an ecommerce payments platform shifting acquiring of UK cardholder volume to the UK from another EU location. The total impact of the shift that we first mentioned in July is greater than 3 point reduction in our reported cross-border constant dollar growth rate. This shift is only a minor effect on revenue since it is an intra-EU move the platform made to optimize its European business.
U.S. outbound spend also slowed moderately as the dollar weakened. As we expected, growth of inbound commerce into the U.S. picked up at the weakening dollar. Inbound commerce into Europe remained robust but growth slowed as we lacked the weakening of both, the pound and euro after the Brexit vote. Growth in outbound spend from the Caribbean has returned to more typical levels after the hurricanes. However, inbound spend remains weak as travellers choose other destination while many of the islands recover.
Process transaction growth of 12% is down one percentage point versus last quarter, largely driven by partially lapping India demonetization. Through January 28, constant dollar U.S. payments values growth was 9%, U.S. credit growing 10% and debit 8%. Cross-border volume on a constant dollar basis was up 11%, process transactions grew 11%.
A brief review of fiscal first quarter financial results; net revenue grew 9%. As I mentioned earlier, net revenue growth deceleration versus the prior quarter is driven by several significant factors, particularly the removal of European rebates. Exchange rate shifts helped Q1 net revenue growth by around one point. Incentives as a percent of growth revenues at 21.4% added a lower end of our outlook range this quarter but up 2.5 percentage point from last year as Europe contract conversion and other renewals during the second half of fiscal year '17 impact us in fiscal year '18. We expect to see an uptick in incentives as the percentage of growth revenues in the remaining quarters based on the timing of renewals. We're on-track to complete conversion of contracts in Europe from rebates to incentives by the end of the second quarter.
Operating expenses grew 13%, primarily driven by personnel costs. As a reminder, personnel expenses were low in the first quarter of fiscal year '17 and ramped up through the year. We have some expenses that are first half loaded including the Winter Olympics in the second quarter as well as Europe integration costs as we complete the technology platform harmonization and start client migrations. Our spend rate on investment initiative is higher in the first half of fiscal year '18 than they were during the first half last year since we ramped up many of these investments during the second half of fiscal year '17. In addition, the first quarter of fiscal year '18 operating expenses were higher than we expected due to some timing shifts and some non-recurring items.
Non-operating expenses were lower than expected due to higher interest income on our cash balances, as well as a gain on the sale of an investment. Our tax rate for the quarter on a GAAP basis was 22.1%, this included two special items related to the implementation of U.S. tax reform. First, we had 1.13 billion onetime non-cash tax benefit from re-measuring our net deferred tax liabilities based on the new corporate tax rate. Second, we had an offsetting 1.15 billion charge related to the transition tax. In moving to the new territorial system, the tax [ph] requires a transition tax on previously untaxed deferred foreign income; this tax which is payable over 8 years is 15.5% on the amounts held in cash and cash equivalents and 8% on the remaining non-cash amount. These two items are estimated based on the information available to us at this time and maybe adjusted over the year as we analyze additional information and guidance.
Adjusted to exclude these two items, our effective tax rate was 21.7%. Both, the GAAP and adjusted tax rate was 6 percentage points lower because of the lower corporate tax rate. Implementation of the tax act added $0.07 to our GAAP EPS and $0.08 to our adjusted EPS in the first quarter. This translates to 9 percentage points of additional EPS growth. Exchange rate shifts added one point to reported EPS growth.
With that, I'll move to our updated outlook. We are revising our fiscal year '18 outlook for the impact of U.S. tax reform. Let me briefly start with what is not changing. Annual net revenue growth is still expected to be in the high single-digits on nominal dollar basis. This includes one half to one percentage point of positive foreign currency impact. The impact of the U.S. dollar strengthening relative to the Japanese Yen, the Brazilian Real and the Mexican Peso is offset by the impact of the U.S. dollar weakening relative to the euro and the pound. The quarterly cadence of revenue growth remains unchanged versus our prior expectations.
Our outlook for the fiscal second quarter net revenue growth remains a couple of points below the full year rate. We also reiterated our outlook for client incentive as a percent of growth revenues in the 21.5% to 22.5% range, an annual operating margin in the high 60s.
Now to what is changing; our GAAP and effective tax rate is expected to be 6 points lower or approximately 23% for fiscal year '18. This is driven by the reduction of the U.S. federal tax rate on our U.S. taxable income from 35% to 21%. This benefit from the reduction in the federal tax rate is partially offset by deductions that are no longer available and a lower benefit for state taxes paid. The 6 percentage point reduction of our fiscal year '18 tax rate represents three quarters of the lower U.S. federal tax rate starting January 1, 2018 through the end of our fiscal year in September. The annualized reduction in our tax rate is 8 percentage points. As such, we will have another 2 point reduction in our overall tax rate in fiscal year '19.
The tax reduction could be partially offset by new provisions of the tax cuts and jobs act that go into effect in 2019 such as the repeal of Section 199 deduction. The 13.1% floor on global intangible low taxed income, as well as the base erosion and anti-abuse tax. We'll be doing the work to assess the impacts of these provisions over the next few months and update you as we have better estimates. At this point we expect an additional 1 to 2 percentage point reduction in our fiscal year '19 tax rate over and above the 6 percentage point benefit we realized in fiscal year '18 as a result of U.S. tax reform.
We plan to reinvest approximately 1 percentage point of pretax earnings in our business and our people. Al mentioned the change we made to our 401(k) matching contributions to U.S. employees. We are evaluating additional investments with a focus on actions that will drive long-term sustainable revenue growth. We anticipate that this additional investment will increase our operating expense growth in fiscal year '18 by approximately 2 percentage points to the high end of mid-single digits adjusted for special items in fiscal year '17. We are still expecting operating expense growth to be higher in the first half and lower during the second half for all of the reasons we discussed previously. Double-digit growth in operating expenses is expected to continue into the second fiscal quarter.
The impact of these changes on our EPS outlook for fiscal year '18 is approximately 9 to 10 points. We now expect EPS growth to be at the high end of the mid-20s range on an adjusted non-GAAP nominal dollar basis. This still includes 1 to 1.5 points of positive foreign currency translation impact. We project adjusted free cash flow to be approximately $10 billion, up $900 million from what we estimated last quarter, this is largely driven by U.S. tax reform. Our quarterly dividend at $0.21 is 27% higher than our fiscal year '17 quarterly dividend. We have over $9 billion available for stock buybacks, we continue to anticipate buying back over $7 billion of Visa stock during fiscal year '18.
We ended the quarter with global cash-on-hand including marketable securities of $14.1 billion of which $6.3 billion is currently offshore. During the quarter we returned $1.8 billion of non-U.S. cash back to the U.S. We're working on additional actions to further reduce our offshore cash in fiscal year 2018. As a reminder, we will adopt the new revenue recognition standard on October 1, 2018, the beginning of our fiscal 2019. If applied to the first quarter of fiscal year '18 reported results, the impact of the new standard would have been small. The impact to fiscal year '19 is partially dependent on the terms of new incentive deals executed and will therefore vary. We will continue to assess the impact of the new standard throughout fiscal year '18 and provide an update if we believe that the application of the new standard to new deals in aggregate could have a more significant impact on reported results. As a reminder, the new accounting standard has no impact on cash flows or the economic value of our business.
In summary, fiscal year 2018 is off to a strong start underpinned by a healthy global economic environment. The shift away from cash to digital forms of payments remains a powerful secular trend. Europe performance and integration plans remain on-track. Our outlook for operating performance remains unchanged, tax reform in the U.S. will add 9 to 10 points to EPS growth after the additional investments we're planning. We remain committed to our state-owned [ph] hold capital allocation strategies, our Board has raised the quarterly dividend again this quarter to reflect the higher earnings potential of Visa post tax reform, and we have over $9 billion in authorization to fund our stock buyback plans.
With that, I will turn this back to Joon.
And with that Athena, we are ready to take questions.
[Operator Instructions] Our first question will be from the line of Tenjing [ph] of JP Morgan. Your line is now open.
I thought I'd ask on U.S. debit; it looks like growth has settled in pretty nicely actually around 8% the last two quarters. Is this a good clean rate to assume for U.S. debit as we look ahead? And I also wanted to meaning to ask you guys, since your decision too no longer require a signature, a checkout in the U.S.; what's the opportunity there, how does this change the dynamic of pin versus signature and all that good stuff? Any thoughts there would be helpful. Thanks.
On the first question, obviously we're not going to forecast ahead but U.S. debit has been performing quite well and as I said in my remarks, debit as well as credit looked very good in the holiday season. In terms of your second question, the reality is that the vast majority of transactions in United States didn't require a signature anyway because of the number -- especially in debit because the requirements of not having to take signature for under $25 or under $50 transaction. Our decision which -- we took a very thoughtful approach to ended up being at least a little bit different than our competitors where we said that we're going to move to no signature where somebody has set up for EMV. We actually think we need to be continue to encourage adoption of EMV for security reasons and therefore made the requirement that it's no signature as long as your merchant is EMV enabled.
And we continue to believe that we've got a good roadmap for debit but I would say these things are unrelated, largely, and the reality is that we think we made a good decision for consumers. I'd also add that I still think there is a place for signature in a number of cases, high ticket items I think -- as we've done a lot of consumer research, consumers want to be able to validate and merchants want to be able to validate that transaction. Also consumers and in situations like keeping [ph] situations where they are adding to the base amount, also prefer to be able to continue to use the signature; so while there is no signature required we do expect that a number of merchants in specific situations will continue to request the signature from consumers and consumers will want to provide that signature.
Next question will be from the line of David [ph] of Evercore. Your line is now open.
Could you update us on your strategy to expand Visa Europe into some of the higher growth markets where you're less well representative, for example, Nordics, Italy and Germany?
Well, I've said in my remarks I've been over there 3 of the last 6 weeks and I think that we have largely built out our leadership team and are very far along on the strategy for Europe. And you're absolutely right, David; if you look at our business in Europe, obviously we have very strong position in the UK, in France, we have a good position in Spain but there are 34 other markets in Europe, at least there is we -- as we establish -- how the way we established Europe and there is a lot of opportunity in the markets. You mentioned plus Italy, plus Germany, and we're in the midst of actually staffing up in a number of markets. In terms of personnel, one of my objectives is to ultimately have less people in the regional hub in London and more out in the markets where the action is. But we -- between bringing our digital products into Europe, Visa Direct, Visa Token Services; as well as adding personnel and building our relationship with issuers, Charlotte Hogg, our new European CEO has spent a tremendous amount of time in the four months she has been with the company out talking to our clients throughout Europe.
So I actually -- absolutely believe that Europe, particularly on the continent represents great opportunity for us and the beginnings of what will be a journey to build our business to a much stronger position on the continent.
Just as a quick follow-up, you mentioned launched Visa Direct in Europe; could you talk about your broader strategy for PSD2, at Analyst Day you mentioned keeping your options open, potentially buying a PS [ph] -- I'd be curious for what your thoughts are currently?
I think as we said then and I think we've been consistent, look PSD2 is kind of a long-term play and I think it's going to take a while to see how it's actually going to play out. We actually think we're pretty well positioned as it relates to PSD2 coming into Europe. The strong customer authentication is going to require and put a premium on risk and authorization capabilities which is a strong point of the whole ability to have third-party accessed accounts I think was a premium on -- and outstanding payment experience and that's something that we tried ourselves in working closely what our issues are and this probably new consumer experience is that we'll emerge as a result of the PSD2 legislation and I think -- again, we feel like we're well positioned to work with our issuers partners on it. So I think this is going to be a very slow build overtime but I think we feel like we're well positioned as it relates to this regulation going into place in Europe.
Next question will be from the line of Darrin Peller of Barclays. Your line is now open.
Just starting off, I mean it looks like there is a round of billing in dollar benefit from tax reform that you can see over the course of the year just based on the tax rates you're giving us now. I know you talked about some specific items like retirement contributions and investments in growth; I guess a little more specifics on breaking down that dollar amount in terms of your expectation on categories along with the sustainability beyond this year. And then Al, just when you think about market share here, I just love to hear your thoughts on -- if there is a good pipeline of things up for grabs, I mean just looking at one of your biggest competitors, the growth profile of some of their volumetrics were still higher, I'm just curious if it was anything that you see happening or is it just timing factors?
On the tax one, yes, just too sort of go through it again. The full benefit of the reduction in the U.S. federal tax rate from 35% to 21% on annualized basis is 8 points. We get 6 points this year because we're getting three quarters of benefit. We'll get 2 points from the corporate tax reduction next year, we're just being a little cautious on the two points because of additional provisions that go in next year that we along with others are looking for more guidance on. We have an initial point of view on it but we're assuming it will change through the year. As you know, when you translate that, that is $1 billion after-tax benefit to us in lower cash taxes as a result of that. There are two things -- we can talk about four sort of things around how we want to deploy the cash.
One, you've already heard us say that we've already made some decisions that will reinvest about a point of that reduction in taxes, meaning one point of our pretax income in our business in operating expenses, some of which you already heard about, things we're doing for employees, others in terms of adding to some of the investment programs that are already on the way, as well as some new initiatives. That will cause our expenses to grow a little bit more than we had originally anticipated, that expenses are essentially on-track for the year versus prior outlook. We're just with a deliberate strategy increasing it by 2 points as a result of tax reform.
The second dimension is commensurate with the higher earnings potential of the company. We are stepping up the dividend, we already have a healthy buyback program with over $7 billion this year, this was reflecting the fact that we were buying back some of the stock issued to Visa Europe owners. Once we get past the $7 billion mark, we need to do more, we will evaluate it at that point. And then finally in terms of M&A and investments, as Al said, our priority is to invest in our business organic growth. The fact the tax rates are lower, certainly improves the ROI you can get on investments and the same on M&A. But we were not cash constraint before, so we're not going to change our posture other than the fact that lower taxes made investments more attractive.
So I'm going to turn it back to Al if he wants to add to this and I'm sure he is going to talk about the other question.
Look, we're not the type of company that can deploy capital organically, extraordinarily quickly but we've got a whole set of key investment areas that are driven off of our strategic pillars and we're going to continue to focus on those things, whether it's security in the ecosystem driving contactless expanding access, digital expansion, those will be the areas we focus on. In relationship to your second question on market share; I would say this, in my mind there is tremendous opportunity to grow in the medium and long-term and I think the opportunity is more. We're growing the market, bringing more people into the payments mainstream, expanding access by displacing cash and cheque. I think we've had a very good quarter, MasterCard had an excellent quarter; to me this isn't a quarter-by-quarter contest, we're driven and focused on sustained long-term growth for our investors overtime and I know it's a point out that I think looking at quarter-by-quarter comparisons can be really tricky, there is a whole bunch of factors that are different between us and some of our competitors, there is business mix differences, there is lapping dynamics, there is timing issues, there is wins and renewals and conversions and frankly, there is differential impact of exchange rates. So I look at it and say, I think medium to long-term opportunities are terrific, I think our fundamentals are very good and we feel good about the long-term prospects of the business.
Next question will be from the line of James Schneider of Goldman Sachs. Your line is now open.
Thanks for taking my question, maybe going back to the Europe topic for a second, if you think about your market share position within Europe, across both debit and credit, Al can you maybe opine on where you see opportunities to improve that position in terms of individual countries? And then as you think longer term, do you think that could come at the expense of local processors or more of your traditional peers?
At this stage, I'm reluctant to get into [Technical Difficulty] A rebate structure and I think it's our expectation that we'll get through almost all of this, there might be a few lag or what gets through all of this by the end of this second quarter.
And in terms of pricing I think we've told you earlier that there is pricing but this year there is the pricing goes into effect in the second half. And then we'll evaluate further pricing actions in the future.
Next question will be from the line of Ramsey [ph] of Jefferies & Company. Your line is now open.
Total process transaction growth was really heavy this quarter despite Indian demonetization last year. Can you give us your view on whether the progress made in India in terms of just the general electronification of payment is kind of a permanent inflexion point in that market or do you see the market reverting to cash usage overtime? There seems to be some media report with some consenting -- some kind of conflicting signals there.
I was doing the baseball analogy; we're still in the first -- maybe the beginning of the second inning in India, there is just a long way to go. I've read some of the same reports but I think we have hit an inflexion point. We've seen a huge increase in acceptance points and volume over the course of the last -- I guess now 14 months. The government is very bullishly behind this and while we're through the demonetization period, there is a little bit more of the cash back in circulation. I think that the government is very desirous of having the efficiencies of more electronic digital transactions, as well as ideally getting past the point where they get rid of the grey economy in India and have more transparency from a tax perspective.
So my view -- and obviously, you know, I know what I know which isn't everything and I think it is at inflexion point but while I say it's an inflexion point sometimes that -- we're well into the match racing curve of this, there is inflexion point there, there is a long, long way to go; 3 million merchants and the type of volume that we're add as much as the growth rate to very attractive, it is very small compared to where India will ultimately be.
And just in terms of metrics, that would -- going to your question about is this permanent, yes, there is a lot more cash in the economy because cash is back to normal but as Al said, the number of acceptance points has doubled and people are not pulling back the government or the banks or all of us are still pressing hard on building acceptance. There are more people using cards, that's a measurable metric and then there is more people using cards with a higher frequency and that's a measureable metric and the real test will be once we fully lap the demonetization, what is still the growth rate and we'll tell you more next quarter.
Next question will be from the line of [indiscernible]. Your line is now open.
I actually also had a question on India and the terminalization of that market. Al, can you give us a little sense of how much the tax related savings might go into helping terminalize that market?
I don't know that -- first of all, money has become plungable but we're already investing fairly heavily in India, it's one of the markets -- as I look around the world, it's one of our largest markets in terms of deployment of people. And I'm talking about people in the market, I'm not counting the 950 people we have at a technology center in Bangalore. And we were planning to grow our India presence in our plan before tax reform. Look, we've turned back to all of our regional leaders and Vasant and I have been asking people to tell us where they potentially could put money to work in a very smart way that's going to drive growth against the type of areas that we're already investing and in India, certainly one of the main areas of growth is building out acceptance, which might in some cases be physical terminals, in many cases it will be continued use of rolling out QR technology and MVisa apps for consumers. So I think it's safe to assume that India is going to continue to be an area that we're going to look to invest in and it's highly possible but decision not made for sure that we'll -- as a result of facts reform we might put a bit more money into that market.
Next question will be from the line of Chris [ph] of Buckingham. Your line is now open.
Athena, I think we have a bad connection. Can we move to the next question?
Next question will be from the line of James Faucette of Morgan Stanley. Your line is now open.
First, I wanted to dig in really quickly -- can you just talk about cross-border and how you're thinking about getting to your expectations, especially since I've seen to decelerate maybe a little bit at least on [indiscernible]? And then more broadly for -- I think Amir [ph] was mentioning that the Analyst meeting a couple of quarters back that you thought that on there could be acceleration and beat this business over the medium term and in part driven by increasing B2B opportunities. I'm wondering looking out at that medium to long run, where we should be looking for those B2B opportunities to emerge and what are some of the things that we should be tracking, I guess similar to the way we're trying to track the acceptance in places like India, etcetera; what kind of things you would be looking at in B2B to look for that potential acceleration? Thanks.
On cross-border, just a couple of things to point out; that is in fact an improvement in the rate of January and we think that will sustain based on everything we're seeing. One item that is affecting our reported numbers is the shift in Europe, included in our cross-border numbers as it is for others too is intra-European cross-border volume that is cross-border business within the EU. That's different than typical cross-border volume but does get included in the cross-border volume and you do have people moving -- acquiring within Europe, and so when fairly large account decides to acquire in the UK from a non-UK location, it's a sizeable move in the reported numbers with modest revenue impacts. So if you add that back, I mean the real underlying growth rate was quite a bit higher than the reported growth rate.
In terms of trends that help that, as we've said before, one of the best things that can happen to our cross-border business in some respects of the weaker dollar, we have a large U.S. acquired business. The good news is we did see the growth rate in that business step-up but it was from very low levels; so our U.S. acquired business which is a very attractive business is growing faster than it was and will most likely continue to grow faster but it's still growing less than the overall growth rate of the cross-border business. So there is one variable that could accelerate cross-border growth further would be the U.S. acquired business, growing faster and going back to double-digit levels like it has been in the past.
Beyond that we'll have to watch what happens as European currency strengthened, clearly it will help the acquiring business in Europe as this becomes more attractive for people or rather the issuing business coming out of Europe as it becomes more attractive for Europeans to travel out. So those are couple of trends that can -- that are both watching.
And James on the question about B2B; it really is a large opportunity, we are focused on it, we have a senior person and a team focused on B2B, we think that through the use of Visa Direct we can meet the needs of a lot of the small and medium sized merchants and using things like single use virtual cards in larger verticals like healthcare and travel. That said you raised a good question around how we can give you guys a bit more insight to our progress and let me take that away and maybe the next quarter or some point later this year we'll try to give a little bit more insight in terms of things to watch there and how you can evaluate the progress we're making along the way.
Next question will be from the line of Jason Kupferberg of Bank of America. Your line is now open.
I think you mentioned out that during holiday season in the U.S. ecomm was about 30% of volume. Can you give us some broader ecomm metrics globally -- what percentage of global volume, how fast is it growing? And then, I'm just curious to get your quick take on the contactless initiatives in the U.S.; what's the issuer response so far because it sounds like that would create some new expense for them? So I just wanted to get your perspective there. Thanks.
On the first question, I don't think we're prepared to start giving breakdown on country by country basis on ecommerce versus card -- present type of growth. I think it developed countries that the trends that I talked about in the U.S. are similar in some of the developed countries. Obviously, in less developed countries the mix and the dynamics between the two and different. In terms of contactless, I think in the United States, again -- the pluming is in place to go, we think by the end of the year 50% of the terminals in the U.S. will be contactless enabled on terminal -- virtually every terminal being shipped now is contactless enabled. And I think the U.S. issuers are getting excited about the prospects of the customer experience associated with contactless and I would expect that you're not going to see a massive off-cycle replacement of with NFC -- that are NFC enabled. But I think that you will start to see issuers as they go through their normal card renewal cycles and there is the replaced cards that are lost or stolen, etcetera, that more of those will be replaced with cards that are NFC enabled.
So I think this is a multi-year journey but -- again, there will be an inflection point at some point where it will really take off as we reach a certain level of scale and clearly, we're not there yet but I think we're poised to begin the journey.
Our last question is from Bryan Keane of Deutsche Bank. Your line is now open.
I just wanted to ask about the operating margins; they were down I think one point year-over-year and looks about one point short of where street was estimating. So just want to think about personnel and G&A costs which were up a lot, does that continue throughout the year and how much did you take advantage of just lower tax reform in the quarter to maybe crank up the expenses which caused a little bit lower margin? And then just a follow-up on Visa Europe; the technology migration going on, will that have a positive benefit to margins in fiscal year '19 as a result of that and just trying to figure out about how much? Thanks.
On the expense side, you might recall when we talked to you last quarter about outlook we had indicated that you should expect expense growth to be higher in the first half than the second half; a lot of it has to do with year-over-year comparisons. Personnel expenses were unusually low in the first quarter of last year for a variety of reasons, I won't go into all of them, some will have to do with the consultation process that was under Europe, some had to do with the fact that we had also done the global restructuring coming into the quarter. So personnel expenses were off to a fairly slow start and if you looked at our personal expenses last year they climbed through the year; so this rate of growth in personal expenses you should not see continue beyond the first half. So there are year-over-year comparisons.
On the G&A side, as I said there were some non-recurring items and some shifts and expenses that make that number higher than it normally would have been. So we did have a number of expenses in the quarter that were of a non-recurring or timing variety but our original outlook for expenses remains unchanged versus what we told you. We have deliberately chosen to reinvest an additional 2 points in expenses as a result of tax reform. I wouldn't say a lot of that was in this quarter, it was more what we expected based on comparisons plus some of these non-recurring and timing related things.
On the second question Bryan, I think we have to see how -- we haven't even begun the migration, as I said we're beginning next quarter. I think we're going to have to see how long it takes, we're going to be measured in deliberate and careful about it. We'll get some benefit from it financially once we're all the way there but I think in terms of timing it's a little bit too early to say and I think in terms of mentioning it, I'm not actually sure we have mentioned it; it's all part of having this transaction continue to be accretive at a level above what we thought it would be when we made the acquisition in the first place.
And with that, we'd like to thank you all for joining us today. Have a great day.
Thank you. And that concludes today's conference. Thank you for joining everyone. You may now disconnect.