We're reminiscing about the past here, so, thank you everyone for joining. This is the Fiserv session. I'm gonna do a fireside chat. My name is Tien-Tsin Huang, cover the payments sector at JPM, and grateful to have Frank Bisignano here, President CEO, to give us an update on Fiserv. I'll go through some questions, and we'll have a chance to ask questions, get questions from the audience here at the end, but thank you for joining us.
My pleasure.
Frank, it's always great to see you and catch up with you. So I know you've given some updates on the macro. Wouldn't be doing my job if I asked you here. You have a great view on the consumer and SMBs, and even bank IT spending. Just quickly, just to get it out the way, if you wouldn't mind giving us-
Yeah
... a state of the macro report.
Well, you know, hopefully everybody follows the First Data Small Business Index. We're pretty proud of producing that, and you saw the April numbers, and they were strong. I'd say May is, you know, not tracking at that strength, but, you know, completely, you know, in a good space for us, you know, completely within our expectation range. I think you see the consumer changing. You know, I think you're seeing volume, but maybe at a smaller ticket in cases, you know, them taking down a hair in their spending, both at retail and in restaurant. You know, for us, we got this diverse portfolio, so we feel very, very hedged in that portfolio in terms of how spending. But the consumer's out, the consumer's out.
You know, there's always this question about bank spending. I don't know if you remember that I'm familiar with working inside banks for a while, and I used-
Just a little bit.
... I used to oversee a lot of the spending, and I always said, you know, like-
We interviewed you about it.
Yeah, yeah. And you know, I mean, my view is that the services we provide are of essential nature.
Right
... and banks are continuing to invest in those. So, you know, when people talk about bank IT spending up or down, I've always felt the things we do, you know, there's strong demand for and continue strong demand. You know, both for our small businesses and for our banks, you know, we approach it in an attitude that we're here to help them grow their business, so their desire to invest in what we're doing is pretty large.
Okay. Good. So let's talk about the business, and a lot has changed in the industry over the last two, three years, and, you know, whether it's best of breed, modern, you know, legacy, traditional, you name it, but Fiserv's been interesting, right? You've been able to thread this needle of being a scale processor, invest there, but also build out software, you call them operating systems, as well. So what worked? How do you properly invest on both sides, both on the scale processing front, as well as on the emerging software area like Clover?
Yeah. I think, you know, the construction of the company, really matters.
Mm-hmm.
And the fact that, you know, we have a merchant business with fabulous distribution has allowed us to be able to continue to reinvest, so we have this reinvestment cycle that allows us to build software. You know, I love telling people, you know, the largest job classification in the company was software engineers, you know. About 41,000 people, half of them are technologists, and 13,000 are software engineers. And, you know, from the start of the transformation of First Data, it was gonna be a software story. And, you know, I do have a deep belief that scale matters, and, you know, yes, you know, there are, you know, well, there are gonna be legacy players, you know. I kind of feel like you're a legacy player once you start making money.
Mm-hmm.
And then you gotta decide, are you investing in your franchise? And when you take what we do on the merchant side, and then look what we do on the bank side, you know, I think that construction gives us a strategic advantage, you know. And you'll hear people talk about embedded finance-
Yeah
... I believe, you know, our capability in embedded finance is unparalleled when you got Finxact on one side, you got Clover on the other, and you got all the value-added services we have in the middle. I think it's about investing in software. I think it's about building it out. You know, we have a business that throws off really good free cash flow that allows us to make decisions, and I think we have unparalleled distribution, both in the U.S. and outside the U.S. And distribution, you can't, you can't wake up in the morning and, and just create it.
Yeah.
You know? So I look at this company in a lot of ways that you couldn't... You know, it's a 40-year-old company, having its 5th anniversary of the merger, and in some ways, we're 5 years old, but we got 40 years of the construction that made it what it is. So I think it's, I think it's a one-of-a-kind asset.
Yeah. No, I think something that always stood out to me is, I think you said it a year ago, you talked about, you know, a unified company delivering more than sum of the parts. And that was happening at a time when other firms were struggling with keeping everything together and cross-selling. So you're in a good place now, but you did re-segment the business to merchant and bank or financial solutions. Why the change? Can you maintain the cross-selling? What should we expect that's maybe different or not?
Yeah, I think, I think the re-segmentation was about simplification.
Okay.
We have two client sets. We have business owners, all the way to the biggest in the world, and we have banks, all the way to the biggest. And if you want to run a client-centric business, focus on that... and that's what the resegmentation was about. I think, I think the issue on top of that is that we're capable of bringing two really revenue-generating assets to our FI clients. One, be a merchant, and with Clover at the front and our, you know, scale and size, our ability to bring to financial institutions something that brings them revenue and merchant acquiring is very, very attractive.
Mm-hmm.
And then you heard us talk about Cash Flow Central, which is an AR/AP product that we think also, you know, heavy demand that's not even in the market, and, and we have tremendous financial institutions signing up to it. So there's an example of going across the company, bringing capabilities, helping our clients grow, and I think those are probably those have the ability to have much greater penetration and growth. And it allows us to distribute software, distribute software, build software that's desired, and distribute software.
Okay, good. So if you took the under that I was going to ask about STAR under five questions, you'll win this bet. So I'm going to ask around STAR, if that's okay. Too early?
You can do whatever you want.
Okay, just want to make sure.
I came to your party-
I think-
- and you invited me.
This is true, and I'm grateful you came, and I want to make sure you come back.
Be nice to me then.
I'm trying. That's why I'm asking if it's okay to ask it up front?
Anything you want.
So, Star, Accel, the third largest debit network, you own that. Of course, Visa, Mastercard being the largest. It sits nicely in the center between the banks and merchant. Of course, it connects the two. So, with Reg II and all the changes there that allows you to be more competitive, what... Do you have the platform in place? Have you made the investments today in Star that allows you to be competitive here? And it feels like there's a lot of strategic value in it as well. What do you see ahead for Star?
Well, you know, I'll take liberty here. You know, when I got to First Data, Henry Kravis said to me, "Look, we got to do something. We got this melting ice cube called Star-
Mm-hmm.
- and, you know, like, we should sell it." And I was like: Gosh, man, it's a debit network. Like, you can't create a debit network. Like, a debit network's really cool. And he was thinking like: What's wrong with you? And ultimately, you know, Scott and Henry, and everybody bought into the concept that, it's a strategic asset that can sit within the construction of this company. So I keep coming back to the construction of the company. And so, you know, our ability to use it to help... And, and maybe at that time, it was the number nine-
Yeah
... debit network, and the ability to use it to help financial institutions and help merchants became quite obvious. Then we did a merger, and we have STAR and Accel, and continue. And then, you know, like, Reg II was really just about competing for more transactions, right? You know, I always said, like: "Well, I don't know why those e-com transactions weren't allowed to be competed for." Probably because people didn't think they were that big when Durbin came in.
Right.
So, you know, early on, you would always ask me, like: "How much more money are you gonna make?" And I'd say: Well, you know, there's formidable competitors, and they're very good at what they do, but we're gonna be able to compete for something we couldn't compete for before, and I think we've done a good job at that. I think it's got tons of runway and tons of opportunity. And so I think we always dreamed of the opportunity and, you know, I think it was appropriate that it occurred, and we're competing for transactions we couldn't compete for. So, you know, that's driving some growth, and we feel good about it.
Okay. Yeah, 'cause look, network economics, incremental margins are high. You see Capital One, Discover come together, and all of a sudden, there's a lot of focus on that, on that network, and you own one that's bigger than that, which is why I asked the question. Okay, so like I said, for now it's-
I don't like saying it like that, but thank you.
But I guess for now, it's really just measuring the growth in transactions. Is that the near immediate opportunity?
I think so. I mean, yeah. I mean, it's, well, the opportunity is, it's, it's transactions and maybe some clients that only had those transactions-
Mm-hmm
... so we would've never had any business from them. And then remember, you know, we have a very simple philosophy, which is, get more clients and sell them more stuff, you know, much like the corner store.
Mm.
Get more clients and sell them more stuff. So we now can get clients that we went and got through Reg II, and then expand all the way through our stack, even to merchant.
Okay. Makes sense. Okay, good. So let's start with merchant again. So the growth algo of 12-15, I think that includes pricing, is in the walk that you've described in the past in your Investor Day. How's the current pricing environment today?
Yeah, I'd say we, you know, I like- I think about pricing more on value than like, "Hey, how are we gonna get a bigger number?" Because, you know, if, if you're not fairly priced, you're gonna have higher attrition, which I think actually gets you low economics.
Mm-hmm.
There's pricing, but I treat pricing like, you know, a smidgen of growth. You know, our growth is really from growing merchants and selling more products.
Right. Right, so it's all attached to software and some of the higher price that comes with it.
Yeah.
So I think with the merchant settlement, I know I've asked you about this before, but with surcharging and the changes around surcharging, is that meaningful to Fiserv?
I mean, you know, we got a $9 billion merchant business that operates throughout the world. We got leading positions in Latin America-
Mm-hmm
... and Europe, so I wouldn't put it at all in the meaningful category.
Okay, good. Figured I'd ask anyway. So on the Clover front, 20% penetration of value-added services, I know you're trying to get more software attached. Do you have the softwares and the software and the tools in place today to move that higher? Or is there more investment or maybe inorganic work that needs to come to get that number higher?
Well, I would say, I would say the following: First of all, you know, yes, we have what we need, but we're never gonna stop because, you know, it's a constant software journey. You know, you go back to what's the number one job type in the company? Software engineers. So, you know, for us, we're gonna continue bringing product, you know. We always had a great gift product for large institutions, but we built it to drop it down and the ability to bring gift to every Clover merchant. We also built software, and need to go back, you know, everybody asks about back book, back book. Well, the reality is, there's a Clover back book that we, you know-
Yeah
... had built in 2017, that now we're back selling them more software also. So we'll build more software. We feel good about the suite we have. You see our continued growth in it. I think it's been a nice sequential walk, and you should expect us to continue that.
Okay. I know international is important. You're launching in Brazil. I believe you have Mexico in the second half. I know there's competition there as well. You're coming through in Asia Pac. What's your right to win in these markets?
Well, I think our right to win in these markets are, first of all, like, if you take Brazil or you look around, you know, that we have strategic positioning.
Mm-hmm.
We're not coming into the market as a new entrant. We have great relationships. I saw a CEO the other day that was talking about their market share outside the U.S., the institutions run outside the U.S., and was like: "If we had Clover, we could grow it even 10% more." So I think our partners, which our distribution partners matter a lot, all want it. And so for that, you know, we have embedded distribution already. And then, you know, software adoption will continue to grow around the world, and Clover in demand, you know, beyond the countries we've been talked about.
Okay, good. No, because it feels like competitively, you know this, I know you respect all of your competitors. We heard from Square and Global right before you. They're rolling out next gen and verticalizing as well, trying to sell through different distribution. But what would you summarize as your differentiation, when all is said and done, on Clover versus that peer group?
Well, you know, you know where I am on my competitors. I respect them tremendously-
Mm-hmm
... and I will never underestimate them.
No doubt.
I think we all have different strategies, really, right? You know, we, for a very long time, always said we wanted to be the partner of choice. I think we've proved that both in the ISV channel and in the bank channel. Distribution matters. I think, you know, also bringing value-added services is a big deal, and I think, you know, we've done that in a way that SMBs like it, and, you know, the largest retailers in the world like our value-added services.
Yeah.
So I think it's about an integrated offering. I think it's about having good partners and having them be able to have great economics also, you know? I'm the worst negotiator in the company. Everybody says it, you know, because I'd rather do a deal and have a partner do well-
Yeah
... than try to have the best deal in the world. And for that, I think we have better growth.
Good. Okay. Same question for enterprise, then. You know, a lot of, a lot of us here in the room and everywhere that studies the enterprise, there's a lot of great players there. I think you're promoting value-added services, and then you talked about adding modularity, there as well. Are those changes enough to explore?
Well, I think, I think, you know, we've invested a lot in Commerce Hub, which was sitting under the Carat banner.
Mm-hmm.
We were always great in-store and, you know, we built out e-com post, you know, the BAMS split, because it gave us the opportunity to be e-com ourselves.
Yeah.
And I think with that, we got to build a modern stack. We always had processing. We were always a great processor, but how do you build a modern stack? And we were always great in-store. So in some way, what we've built in Commerce Hub and Carat give us, with an orchestration layer and VAS on top of it, I think give us a very modern capability that we feel we got a right to win wherever we compete.
Okay, so feature-wise, you're, you're right there, you feel like.
Yeah.
Okay. And then just lastly, on the traditional processing business, I know there's a lot of JV partnerships. There's questions on that. I know there's a term fee and a change there as well. You don't have to talk about that, but just talk about the health and the outlook on the base processing business.
... Yeah, I mean, I, I always related, and this is, I mean, I'm dating myself 'cause I'm old, but, you know, when you ran a securities firm, you always thought like: "Well, I have a bunch of great services I can offer. I will sell them to, you know, I have all these fabulous, financial advisors, but I also have this infrastructure that can do corresponding clearing-
Yeah.
So for us, it's like we have processing capability. We don't necessarily see it as a growth engine, but, you know, it provides a base ability and, you know, lots of people at times want to convert to a different model and we're there, capable of processing for them. And, you know, obviously, in some of those processors, then they'll end up distributing more of our product over time.
And we've seen that-
Yeah
... you know, with some of the changes. Okay. We'll pay attention to that. Last one on merchant. You know, I think I have to ask you around the whole factoring, the cash advance business, and the opportunities in LATAM. I don't want to. My head always spins when I hear about inflation and FX and everything else, but just why is this a good business for Visa? Why is it a good business for you? Is there still a lot of room to, you know, to penetrate? I know there's a reason to go after it.
Well, you know, I, I would, I'd use Brazil as the way to think about it.
Sure.
You know, like, we were not in Brazil. We built a business in Brazil.
Wonderful.
We built a business that was about merchant acquiring and services, and, you know, anticipation was part of it. You know, and it was a mechanism that actually was the mechanism to operate in merchant acquiring. I think when you cull through it all and get to the bottom of it, you know, our ability to grow in good times and bad has proven-
Mm-hmm
... right? You know, our ability to navigate. Yeah, I know, like, I know, you know, like, I don't want my walk-up song to be "Don't Cry for Me, Argentina," you know? But at the end of the day, you know, we have a great Argentina business, and we had it before inflation, and we're powered through it, and we'll get to the other side in very good ways. So it's a good business for us 'cause it, it creates economic value and, you know, our cost of capital gets paid back in a very strong way. So it's market convention, and we're a market leader.
Yeah, and it's high-return business. What would your walk-up song be?
I don't know.
Put you on the spot.
I don't know.
You got to say Taylor Swift or something, huh?
Okay, you can determine it.
We'll save it for next year. We'll ask you.
All right.
So let's do Financial Solutions. So yeah, first quarter, you came in at the lower end of your full year outlook, so it begs the question of what drives acceleration? What would it take to get you to the high end of the range?
Yeah. Well, I think, you know, like, there's always comparison issues and others if you look back quarter, a year ago. But what it, it's really about our pipeline. It's really about, you know, what we see. Our payments business is strong. We feel good about where our core wins are. But remember, you know, banking is really, the ability to then sell all the other value-added services.
Mm-hmm.
When you look at, you know, what we have with Zelle, what we have in our digital offering and what we see there, you know, XD has a huge pipeline. That's our next version of digital, which is being implemented during the course of this year. So I think we got clear visibility. You know, it's a long... I mean, these are not... You know, you don't, you don't book them in a quarter, in realized revenue in a quarter, so-
Mm-hmm
... our visibility is strong.
Within digital then, what are you most excited about, Frank, across all the different things we've talked about? I know there's Zelle and their star we already did. Cash Flow Central.
I mean, you got to love Cash Flow Central.
Okay, so tell us why?
Well, I think you'll love it because we're bringing a product that helps our bank partners generate revenue and help their SMBs also manage their business better, so you know. And you're bringing something that people don't have, right? So I think that's our ability to distribute it to our whole SMB base, that be Clover, through our ISV channel, really is extraordinary. And then, you know, it allows us to have an SMB suite that goes beyond what we're delivering in Clover, but delivering an AR/AP solution. So for this company, it serves its banks fabulously-
Mm
... brings revenue to the bank, and serves our merchant business. So it gets back to this thing I keep telling you about the construction of the company-
Yep
... and the ability to distribute product through the whole place.
Yeah. So this, this is really going to be sold through banks, but in somewhat of a, of a one-to-many fashion. So for us to track the success of this, it's really looking for bank wins, and is that the beginning?
Well, we, you know, we're delivering - we're distributing it to our current banks.
Right.
Right? So, you know, if you look, whether it was Citizens, whether it's, you know, WaFd, you know, U.S. Bank, banks that, you know, they're all... You know, everybody's our partner. I'm kind of proud of that.
Yeah.
... but, you know, it's, I think we'll ultimately start talking to you about size of install base.
Okay. Okay. No, it's an important subject. There's a lot of focus in the AR/AP.
I mean, what's interesting is people, people used to always say, "B2B, B2B, B2B.
Yeah.
And I'd be like, "And so we spent a lot of time," because I felt like that was a saying as opposed to, "Here's the product, here's the application." And, you know, we spent a lot of time making sure we weren't having a solution that somebody didn't have a problem for, but instead that our solution was solving a problem, and I think the banks really feel it. We talked to our SMB merchants, and they wanted it, and so we went all in.
Okay, good. No, it'll be fun to track 'cause like I said, AR/AP is a... We've been conditioned to know it's a big market, but it feels-
Well, you know, what's interesting-
Feels like there's a lot of growth to come.
Part of me was a little on this, having hung out in the companies I hung out in, large institutions always had AR/AP-
Mm-hmm
... solutions for large institutions, you know, and you'd look at the common names, but there was never anything-
Yeah
... down low, and once you started thinking about that and thinking about how we're a natural provider to SMBs, it kind of, it fits our whole hand.
Yeah. No, paying bills is hard, so let's see how the SMB market-
Yeah
... takes it.
I'm not that big a fan of paying bills. I'm joking.
Gotta, gotta pay 'em. That's why we're here, Frank. That's at least why I'm here. So Finixact, Finixact, let's talk about-
Finxact.
Finxact, sorry.
That's all right.
My eyes are old, too.
I'll be calling my kids by different names.
Finxact. Finxact, I know. I've met them before in the old days. So when I think about it, it feels like it has the potential to be the Clover within your fintech franchise. Is that fair? Is that a good analogy?
Yeah, I mean, we have a... Here's how I think about it, and, you know, we were a... And maybe this is important, right? I'm not sure that everybody knows this, and if you know it, I'm repeating it, I apologize. Remember, the initial Finxact investment happened by First Data.
Mm-hmm.
Because I had a deep belief when running First Data, if we had a core, we could have an ecosystem with a debit network, credit issuing system, and a merchant acquiring business, that we could have an ecosystem that could do some special things. And we began the build-out with the Sanchez brothers.
Mm-hmm.
And we were completely in the huddle, and but what became clear to me over time was it was gonna be a much longer journey than I maybe had patience for, thus the Fiserv First Data acquisition. Knowing that, then we were bringing in a product like Finxact, which was the next generation, and it would support our current client base, but allow us to do things with others. Fast forward, you know, we end up being the core for, you know, One Finance, which-
Walmart
... Walmart, and, you know, now have a huge install and proved out the case that Finxact is industrial strength core. And so I think, you know, for us, it will be Clover-esque. It's just, you know, the cycle time on signing clients up isn't exactly like us walking the streets, signing merchants up.
But tell us too, maybe it's important to understand, like, with Walmart, I know they work with a lot of different providers. They've attacked this opportunity differently. What's different with this one?
With Finxact?
Yeah, Finxact. Yep.
Well, I think what's different with Finxact is, you know, it's a cloud-enabled, API-friendly core, which is a ledger beyond just banking.
Mm-hmm.
Right? You know, Sagent, which is in the mortgage servicing business, is currently, you know, engaged in bringing their ledger, you know, all their books and records fundamentally, up on Finxact. So it has a much wider application base. You see a lot of embedded finance dialogue and wins because we could bring Finxact, we could bring Clover. They can integrate well together and get up and running. So easy access, cloud-enabled, configurable in a manner that is easy to operate, and so, you know, it, it's modern day. It's the most modern product out there.
All right. Good. We should take questions from the audience if there are any. Happy to take them, otherwise, we'll keep going. Anyone, feel free. No? So just a few more then. Have to ask you, I know you've been systematic in buying back shares. 130% of free cash flow has gone towards share repurchase, but I've been asking all of your peers' appetite for M&A just 'cause it feels like there is some industry consolidation and it's picking up, and it makes sense given where we are in the cycle. Is your appetite for M&A different than what it was a year ago?
I always got a good appetite at the right price, you know?
Mm-hmm.
I have no problem on that. You know, I spent my life doing mergers.
Mm-hmm.
-both at Citi and J.P. Morgan, and we obviously did a good merger, I think. We bought Clover, and it was $56 million, and you see where it is.
Mm-hmm.
We bought, you know, Finxact, and we're an investor early on. You know, I kind of look at our stock buyback last year, and it's easy for me to kind of be upset that we didn't buy anything. On the other hand, I'm not upset that anything traded away from us. So, you know, you should expect us to always be judicious. You should expect us to think about our vast distribution network and the ability to acquire product and put in it, like we even did with Ondot and brought it to over a thousand banks. And, you know, I kind of think, you know, if there's a huddle to be in, we'll be in it, and we know we got decent appetite.
Okay.
You know, we don't use appetite suppressants or anything like that.
Yeah, I won't make a joke on that.
You can. Feel free, man.
That's all right.
I don't even know what I'm talking about.
I think, I think I do. That's why I'm not making the joke about it.
Oh.
But, okay. No, I think that's fair. That's completely fair, and look, I think you, you've... Fiserv as a firm has done a great job of consolidating, extracting savings from past deals and whatnot. But your confidence in delivering on some of the longer-term margin goals, even if revenue gets a little bit more difficult for whatever macro reason?
100%.
Okay.
You know, I, I mean, like, look at, I, I think about this, that, look, we're not gonna, you know, we're not gonna get to 100% margin ever, you know. But I think given where we are, given our size and scale, given the amount, amount of investment, given the amount of investment we do in driving productivity, I think, you know, margin expansion's part of our formula.
Okay, so. So just to close it out then, given where you stand from a product perspective, we, we talked about a lot of different things. What, what are you most excited about, Frank, focus-wise?
I'm most excited about delivering software. You know, that very simple concept that we're in a business to deliver software to both banks and to merchants, you know. Yes, we have processing, but, you know, we run operating systems, and if you run operating systems and you can build software, you're gonna do it in a way that actually is a high-return business for growth. So one of the things I try to tell people all the time, you know, when they think about where to go work, you know, you got all types of choices. Go work somewhere in a growth sector, right? Like, go...
And, like, not a nouveau growth sector, and I feel like software, you know, which I've been around my whole life, is really, you know, fun to build, great to deliver, and you can do it once and do it to many. And given what we got in our merchant base and our banks, it feels like, you know, a something that has tremendous, you know, durability for the long haul.
Yeah. Oh, agreed. Terrific. We'll close it out there. Thank you for spending a few minutes with us.
My pleasure, man.
Thank you, Frank.
Thank you.