You ready?
Yeah.
All right, fantastic. Hey, welcome everybody. We are very honored to have the CEO of Fiserv, Frank Bisignano here to join us at the conference. Frank, so much for being here again, appreciate it.
My pleasure.
Maybe to get started, you could give us an update on sort of what you're seeing in the consumer spending environment. I know that we've been through some weather-related impacts earlier in the year. What are you seeing sort of most recently out there?
We sort of produced the Fiserv Small Business Index. You saw that April had strength. I'd say a little slowing in May. I think what you see is services are strong. I think also, you know, we've heard from others comment on where money is being spent and who's spending it. You see those who have natural discretionary income still spending in discretionary buckets, but I don't see, you know, you see a slowing down in those buckets when you start going a little further south in the income bracket. So that's how it looks as of right now through May. April looked strong. May has a little slowness to it relative to that. But you know, the consumer's out, you know, still.
I think, though, it's starting to stratify, it's starting to segment. You know, obviously, there's been an inflation effect, and higher discretionary categories can afford it better than lower income.
And next, I want to move to Clover, which has been such a success story for, for you guys over, over many years now. Maybe I wanted to first ask on the software side. You, you've got a goal to get to 27% attach rates, I think, by 2026. You're already at 20%. Should we think about that, Frank, as more like you have what you need now in terms of the software solutions, and it's just a question of going out there and, and selling them in? Or is this also kind of an evolution over the next couple of years where you're gonna see more product innovation, more new products kind of, you know, come out, you know, via Clover?
Well, I think we'll always have more product.
I think we'll always have more product. You know, you see us bring a product that, we started out with a design in the, bank channel to bring, something we called CashFlow Central, which is really an ERP, and you heard us probably announce four or five banks, before it's even come to market. Big banks, WaFd Bank, Citizens, Fulton Bank, who have signed up for it. And then, you know, U.S. Bank. And, you say, "Hey, we should run out of Clover," right? We're distributing through the banks, but we'll run it through Clover also. And that'll catch a series of, clients who are not in those bank channels. So that would be an example of a great product.
The second part is, you know, it was only this year that we actually fully enabled for full capability, as I think about it, our gift product. That was a rollout late in the year that even came into the beginning of this year. That would be, like, two pretty large items, I believe, that will have future penetration that's not in our numbers. You know, we have a set of things that we've begun. You know, everybody always... I don't really want to introduce this item, but everybody always wants to talk about the back book, the back book, the back book, the back book. Well, there's a-
You mentioned it.
Well, we're not gonna talk about that right now. But, you know, if you think about Clover, it has a back book of its own.
It has clients who bought it, early adopters, that we could go back with a set of software products into. And that obviously drives penetration. And then, you know, our view is the more we're bringing to it, the more software adoption we have. And we have tremendous growth across the globe. What we're gonna do with Clover over the next few years, that sits in there, so we feel good about it. It'll be more product brought to it and more penetration.
That's a great segue to my next question, which was about the international opportunity. It does seem like you guys are, again, making great progress moving into international markets. Can I give us an update there? And, you know, how are you thinking about that longer term opportunity for Clover?
Well, you know, I was, I was with a really good client who has huge market share in Australia, and they can't wait to get it there. And that'll be a 25 event. You'll watch us come out in Mexico and Brazil at the end of this year. You see Germany getting new energy and life. You should expect, as we took 100% ownership of that JV in the Netherlands, us to distribute it in the Netherlands. So I think, I think, you know, we already had a footprint, whether it be Ireland, whether it be the U.K., whether it be Argentina, where we had already been in market. We were in Germany. So I just think, you know, it's a global product. We built it to be global.
We thought really hard about how, you know, Argentina was the first place. It's, it's a small percentage of what we do in Argentina, but it was a place to learn how to, you know, come outside the U.S. in a different language and be able to deliver it in, in a better way. So I think it's, it's one of our many, you know, initiatives that you'll find in a Clover platform that will continue to drive growth long term.
... And, talk about the distribution, the sales and marketing and distribution, strategy in these international markets. Is it mostly finding a local partner, or is there a direct sales effort that will follow, or what?
Much like the U.S., all of the above.
Yeah.
You know, we have bank partners, we have software partners, we have, you know, technology partners, call them, you know, a different form of ISV. And, you know, we, we do work on our own sales force too. You know, so we believe in, in multiple distribution channels. Obviously, you go to Brazil and you got Caixa, and you got a, a bunch of, you know, Sicredi who basically, you know, has all the credit unions in, in Brazil, and they're, you know- we're able to get some massive distribution and, you know, continue to believe we win market share there, and now you bring Clover in behind it. So I think, I think it's, it's multiple, multiple ways, as we do in the U.S.
You know?
On Argentina, remind us about the impact of Argentina this year, what your expectations are there, and what are you, you know, what do you expect in 2025? If you can go that far in terms of what an Argentina impact may or may not look like.
Yeah. I mean, if you look at, the first quarter and what we call... You know, you've seen us make a call out on excess, right? We have a great Argentine business. You know, I always think, like, my walk-up song is Don't Cry For Me, Argentina. You know,
We should have played that.
Yeah, yeah. I'm kind of glad you wait till, like, the fifth question. You guys are learning. So I think the way-- First of all, you know, Argentina has two elements to it. It has FX negative. When you get to EPS, we generally say unaffected or slightly negative. And you know, that's kind of where it all comes down to roost. When you pull out what we would call excess, you know, you'd say for the quarter, it was a 14% merchant growth rate and a 10% firm-wide growth rate. You know, I think every... I mean, geez, we don't have the crystal ball, but we sure, we're on the ground. You know, we're in the market.
We've been talking about what happened in Argentina, and I'm not saying we've got it right, but we've sure been close. And in, you know, we're not traders, although, you know, we have good market sense on where we talk to the government quite regularly. You know, I'm not saying that Argentina's impact will end this year, but it continues to dissipate, and maybe at a speed faster than we thought. I don't think that affects anything that we believe in our regular growth rate. And we got a good, strong business there. So I think, you know, we always say it had transitory. You know, we were never gonna be the size grower that it was producing.
You know, obviously, when you got to the EPS line, it wasn't really producing anything.
Yeah.
You know, the two were offset.
You guys do a great job breaking that out for folks anyway, so-
We're trying.
Yeah, yeah.
We're trying.
I mean, we're gonna be really good by the time it's over, at explaining it to you. What about the longer-term mix in merchant? You got Clover growing quite fast, and when you fast-forward a few years, do you think you'll see a company with, on the merchant side of the business with more of an SMB kind of mix? Or I guess your enterprise customers also bump out quite a bit of volume. So how do you think about the merchant mix evolving over time?
Yeah, I mean, I think we've probably finally figured out how to explain to you processing, SMB, and enterprise. I was trying to say it, but maybe Bob did a better job of putting on a schedule and reporting it that way. So hold that thought. I don't think anything's really changed from our views on Investor Day. You know, we will go hard at enterprise, we will go hard at SMB, and we like processing. I think when you look at our mix, it's hard not to see that, you know, this SMB is a majority of the business, followed by a decent-sized enterprise business.
You know, I think, you know, like, our long term, way past anywhere we probably talked about, you know, is there's ton more SMB opportunity in total, right? And when we look at, you know, there was a lot of early in my days, malignment about the bank channel, and I think we demonstrated that the bank channel can actually generate. I think we think it can generate more. We think we can have more banks. And, you know, and we think - we remember we never had an ISV business. We bought a couple of companies that were good in ISV, and today we think we're leaders there. So those are all SMB plays. You know, at some point over the next horizon here, you know, quarters, not years, Clover also gets distributed to ISV.
And obviously, they have their own software stack, but there will be software attributable there. So, you know, you'd have to say we got a great love of SMB. Although when you got the type of enterprise names we have, you kind of like that a heck of a lot, too. I mean, it's showing up in our e-com numbers. It's showing up in our growth numbers there. So I don't think you'll see the mix change a heck of a lot, but, you know, our guide takes you to-
That's not-
Good growth, good growth numbers.
Yeah, for sure. One question that I get quite a bit from investors who are trying to plot this stuff is, is Reg II-
and the opportunity there. You know, what, how do you see the opportunity? And kind of what inning are we in? I guess we can't quite figure out whether what we see is what we get today, or whether this is a pretty slow-moving thing that will build over time.
So we're talking in innings, right?
We're talking. This is baseball.
Okay. Okay, I can handle that. You know, twice during the game, the field gets cleaned. Twice during the game, the ground crew comes out and cleans the field, and so I'd say we're right in the middle of that period. Now, for those who don't know, that means between the third and sixth inning, you know, and if you try to say, "Well, which one?" Closer to the fifth. Something else that also happened in baseball, it went from a 3-hour and 10-minute game to a 2-hour and 38-minute game through rule changes. Now, this is a much longer game than that game. So even if you're in the fifth inning, it's got... You know, that was the speedy part of the game as we were enabling early.
There will be a lot of late-inning adopters and a lot of different things that will occur during that. So I'd say, fifth inning, but the, seventh inning stretch will take the game into maybe even extra innings.
Okay.
How's that?
That's good. That's, that's super clear.
Some people's eyes are glazed over right now, trying to figure out what the hell I'm talking about, but he brought it up.
Could you please do it again, but just for soccer?
Yeah. Okay, okay. Well, let's talk about the Red Sox.
On the financials, I'm moving away from merchant. On the financial-
Oh, please don't.
The financial solutions part of the business, one thing I've always wanted to ask you is, when you look across— Now you're, you're breaking out your revenue, quite conveniently for us, you know, digital payments, issuing, and banking. How do you think about it, the customers across those three lines? Is it the same customers using those three, you know, across those three lines, or do you have a different set of customers who are doing X, Y, or Z product versus the other? Is it really just sort of a question of everybody and things?
Yeah. You know, our head of Financial Solutions said the other day, "You know, every hour, a client buys another product from us, every hour of the day." So just... I don't know if that's helpful or not, but it was just, like, an interesting fact, you know, that every hour of the day, somebody's buying, who already is a client, right? So hold that thought, right? And I think there's great overlap, although, you know, we will have people who buy only debit processing. But then, by some odd way, they end up buying credit after that, and then we go have a conversation about, you know, deposit and loan systems. So I think, you know, our objective is not to have standalone clients.
Probably five years ago, the idea was sell a core and then put a bunch of surrounds around it. Now, we've built out a ton of product that allows you to lead with other items. You could lead with debit, you could lead with credit. You could get somebody even on large credit, and then they happen to buy Finxact, because they're gonna do something different. I also think, you know, the way we've approached embedded finance, which you probably heard about it, we have this unique situation where we're the, you know, the only player that I know of, you guys may know of others, 'cause you cover a lot more universe than I do, that has a merchant business and a banking business, and I think that's a distinct advantage.
If you think about, you know, how many banks buy merchant from us and buy all the products and financial solutions, I think, you know, it gives us a strategic advantage. So, you know, we get up in the morning thinking, you know, and this would be what we used to say in merchant, our job is to go get more merchants and then sell them more stuff, and keep the ones we have. I don't think it's any different in financial solutions. And it kind of gets to why the segmentation, right?
You know, if we're going to sell, you know, what classically you all would call core, along with debit, credit, digital, and a bunch of other, call it 37 products, you know, what matters is what the totality of that is, and the margin of it is, and that we got as much as humanly possible. So, you know, I, I'm more focused on the segment, not to outweigh it against one. We wanna have great growth rates in all of the three sub-categories that we talk about, but recognize, we go to the market a lot of times, sometimes selling, you know, seven to ten, you know, actual products in a bundle. So, I don't know if that's helpful to you.
Very helpful.
I'll make one other point, please. Here's another point. The merchant acquiring business with banks generates revenue for banks, right? The strategic advantage we have, right? CashFlow Central generates revenue for banks. That's a strategic advantage for us. Those are products which are high margin for our bank partners, build tremendous advocacy, gives us, you know, a strategic position with them as we bring in new products like Finxact, as we think about embedded finance, as we think about what everybody could do. So, you know, I think you gotta look at the totality of the company, the construct of the company. It's none of it's happenstance. If you go back in time, you know, at First Data, we were investors in Finxact because I had a deep belief if you had a merchant business and you had a core, you...
You had a debit network, and you had a credit issuer processor, you could have a great offering for clients and catch them at any point in when they wanted to make a buying decision, and then work your way through if you do a good job with them. I know it was nothing you definitely asked me at all, but I think it's the construction of the joint, and that's why two segments, and that's why, you know, I think the property is designed in a manner that allows us to be able to continue to grow in the manner we do.
And how do you think of the bank's sort of health and budgets and appetite right now in terms of being active across all these axes you're, you guys are involved in?
So, as some of you know, I spent a lot of time in banks, and I was always perplexed early on this comment about bank IT spending and what that might forecast to our revenue, because that's like part of the underlying fabric of the question. And when you look at what we do, there's not much discretionary items. You know, we're not selling consulting services. We're not, you know, an advertising company. We're the core infrastructure of joints, right? We have mission-critical systems. So... And then, you know, we're in the business to help our clients grow their business, right? So for that, we feel the appetite's very large. I think the bigger issue, and I've said this, and, you know, depending on what cycle we're in, because it hasn't changed, I don't believe.
The bigger issue is, what are the set of issues our clients are working on so they can have the resource to receive what we're sending? I don't think it's an economic issue.
It's a human capital issue of deployment that they have on their initiative list.
And if you go at our size and scale, it'll always kind of level out in my mind, because if you've got thousands of banks, everybody's on a different journey. So I feel banks are healthy. We love banks. We're here to help them grow, and I mean, I think, you know, we have, you know, superior demand.
What about bank consolidation? I personally expected to see a little more small bank consolidation after some of these recent kind of banking crises, but it doesn't seem to have happened. Are you seeing any rumblings about future consolidation, or is it pretty static right now out there?
I think there's always banks merging. You know, there's always banks and market overlaps and towns and cities across America. They're just not like, you know, it's not a boom. But that may have to do with a set of things, including, you know, where we are in administrative cycles and how simple it is to get deals done and, you know, people feeling how they feel about their valuation. I mean, there's a lot of factors in it. It's... I mean, you know, I think, you know, there may be. There's statistically less.
Statistically less. I don't think it's thought about less.
If that can make sense to you. If you're, you know, a bank CEO, you're thinking about, you know, look at that. That, that guy's three towns over in, in Virginia. Maybe, maybe I should go visit him. That happens still all the time.
Changing the subject a little bit. In Q1 free cash flow, there was a fleeting impact from some green tax credits that you guys purchased.
I guess the question is, is that, talk a little bit about that strategy. Is that, is that something that we should expect on a recurring basis? What was the kind of, aside from the, you know, the spread that you're making by doing that, what, what?
Well, that's the only reason we're doing it! You know, I mean, it's earnings, you know?
Right.
It's money that was-
Fair.
If you really dig into it, you know, we were a leader at this. Well, I give a ton of credit to the crowd, you know, the creative crowd inside the company, who found the opportunity, and there was enough spread in it, enough surety in it, enough insurance in it, that it was very, very, very good to do. I think they're gonna expand over time, meaning the population of these-
And the pool of people who are getting involved in it. And so, you know, it's gonna be a race. There's gonna be a point that, for us, the spread won't make sense. You know, I'm not prepared to declare that point or any of the economics around all of it, you know, but totally accretive. As a shareholder, you want us to do it. We had a unique position in it. But like anything else, you know, as it matures, it will change.
And really, you know, yes, there's a cash flow item to it, which will square itself up as we go into the latter part of the year, and, you know, obviously, that's in our calculus. But ultimately, I think it's good business when you're our company, and you've got the assets we do, to be able to generate earnings from it.
You know, I'm not a forecaster of it, but I can tell you, way more people are interested in it now than when we did it. You know, in some way I'm proud of that, in some way I wish no one paying as much attention. But, you know, there's buyers and sellers of it, and if you've got the asset, then you can, you know. Ultimately, our free cash flow is unimpacted. Its impact on a quarterly basis. If you look at our leverage, you look at our balance sheet, look at our earnings, you know, we're capable of doing this all the time.
One of the dynamics we picked up at the conference is maybe, just maybe we're seeing the beginning of the sort of bid-ask spread on M&A start to, you know, get a little more rational. I wanna ask about capital allocation M&A, but maybe starting there, what are you seeing out there in the environment? Is there some rationality, or is there still just this kind of wide gap between what the sellers of assets are looking for and what buyers are willing to pay?
Well, judging from what we bought last year, it was a pretty big spread because if you look at what we put out, capital, versus historically, what we did. So, I think. Look, there's always this gap, right? The question is, you know, well, the sellers of property are also because the property has gotten to a place that the past was better than the future, right? And that's gonna come into the calculus, and even, you know, that matters a lot to us, right? That matters a lot to us. You know, if you ask me, you know, I would like to...
I like to buy, I like to buy things and put them, you know, on a distribution network and just put them on steroids, whether it's Clover, whether it's Ondot, whether it's BentoBox, it's proven time and time again. I suppose the bid-ask is closer. I suppose it's closer. The question is, you know, it's closer, but is it close enough?
Yeah.
Is it rational, reasonable? I mean, we have a set of criteria. We work off a grid. We're not gonna change. You know, we like accretive, we like accretive, we like the ability to drive growth. We're not buying things to take expense out and grow EBITDA. It's about growing businesses. So, I like to, you know, I like integrating companies. I've done it my whole life, you know, so I'm not in love with the bid-ask spread.
But I'm not prepared to change what we've told our shareholders we do, and our benchmark for capital allocations, the buyback. And we've done things that have performed better than the buyback and, you know, I think that's good, and I hope, you know, as our shareholders expect from us, and I hope they respect what we do.
You've gotten your multiple, you know, increasing nicely, your valuation multiple. Does that make that calculus a little bit different in terms of, you know, that hurdle rate in terms of buyback versus M&A, or is it still?
I don't think so. We're not using our stock. We're using cash. I don't really think of it that way, you know? I mean, I don't know of a CEO or a CFO that sits up on any stage in any industry and goes, "I like my multiples so much, and I like my multiples so good, I feel really good about it." It is a good multiple, right? So, you know, nobody, nobody like their multiple, and there's reasons why, 'cause they can look at things that tell them they should have a higher multiple. Now, I think the only way to get a higher multiple is just keep doing a really good job. You know, it's not like, it's not like begging, you know? Begging isn't gonna get you there.
Fantastic! Frank, we're out of time. What a terrific-
Sorry for that.
Yeah, thanks so much for being here.
That means we're in the ninth inning?
We are in overtime, Frank.