I believe we constructed in a way that's unparalleled, and the construction of it was well thought out. It, it wasn't happenstance, and we can talk about that after. But I remember thinking like: "Oh, geez, I don't wanna break the streak. You know, take this company and break the streak. Do you wanna be the person who broke the streak?" I also said to myself: "I will not allow us to be beholden to the streak to trade off long-term future." So that's a balancing act. You know, how are you gonna keep the streak and invest for growth? And I think I will come back later, you know, to the construction of the company. But if you look at, you know, today, the double-digit growth, I actually think is different than previous double-digit growth.
Yeah, this is our 40. We're gonna be 40 years old this year. We're gonna be 40 years old, but I like to think that we're really 5 years old, post-merger. So we're a young company in a lot of ways, but we keep that value of strong free cash flow model, the ability to invest, and the ability to grow the top line at a rate neither company did, which, you know, is one of my favorite attributes of the company. Like, we took a, call it, what would you call Fiserv grow at what?
3-4% or down, yeah.
3-4%. And you probably never spent enough time even studying First Data because you guys mined it so much.
Not me.
I'm over my self-esteem problems, but you know, at the end of the day, I'd say, you know, on a good time, it was a 6% grower, it started as a 0. So it's a little odd to take a 6 and a 4 and say: "Oh, we're gonna grow 7%-9%," which is what we originally guided at that Investor Day. And then we talked about a free cash flow model, and people thought when we talked about 7%-9%, we were like: "What are you trying to do here?" But we always had deep belief in the assets inside the place. So now we sit here, you know, 5 years old, on our 40th anniversary, and I do think the ability to generate that top line growth and the double-digit growth...
And by the way, the construction, if you look at the P&L, you know, we probably have better OI, operating income growth, than we did earlier in our life as a double-digit EPS grower. And you should expect us to do that, expanding margins, free cash flow, tremendous distribution, the ability to grow the top, the ability to bundle products, all kinda gets us excited, and I think we're a young company.
Mm-hmm.
I feel we're a young company, I think we're a young company. I could see the amount of opportunity for multiple years in front of us.
Yeah. Well, thank you. And maybe we can start out with the merchant segment. It's about half of your revenue, the First Data segment, really. I guess, first of all, what trends in kind of May, in April and May, you know, they're pretty similar to Q1? You don't have the leap day benefit, but what are you seeing so far?
Yeah. You know, I have this. Early on, we built a data, a data store years ago, and I'd say, like: "We should know every day," and if you came up to our offices, you'd walk by and, a big screen showing the 40% of the US traffic that goes through our veins, what's going on second by second, and I'll look up at average transactions per second. I'll look at peak transactions per second. And thus, the birth of the FBSI, 'cause I thought that information was tremendously valuable. So there's the FBSI, and then maybe there's, I just made this up, I've never said this before, the FB, pattern recognition of what I walk by every day and seeing where America is spending their money. Now we have that same data set across a whole bunch of other businesses and geographies.
As you know, we reported a strong April number, actually looking stronger than Q1. We talked about, you know, in the beginning of May, feeling a little slowing. It's still a strong number. The April number was very strong. This number is backed off it a little bit. So the consumer is spending.
Mm-hmm.
The consumer is spending, and I don't have June data for you yet, but I'm sure you wanna know that, too.
That'd be great, yeah.
It's coming. That's coming to a FBSI at the end of the month. So I think you know, there's no, there's no you know. And I think maybe I should say this because I know last time I said May was a little slower than April, people thought I was trying to tell them something. This is completely within our expectation range, just for clarification. Growth is good. So that's what we see right now.
Yeah. Okay. And you have a lot of pieces of merchant. We'll ask a little bit about Clover and stuff in a minute, but when we look in aggregate, when we look at volume growth and revenue growth, it seems like you're disconnecting in a positive way, where if volumes grow, you know, mid-single digits, maybe a little better in the US, for the overall Visa, Mastercard, you're even growing a little faster than that, but then revenue is well above volumes. And maybe talk a little bit about, is that the expectation going forward, that whatever volume growth is, revenue will be much better, and why?
Well, you know, go back to, you know, even us re-segmenting the company, and, you know, I did a really bad job for a really long time. That's not really good if that's your, like, description of yourself. I did a really bad job for a really long time in getting people to understand we have this proc- I used to say it, but, you know, I think Bob Hau, CFO, and Julie did a great job in breaking out processing so we can end the debate about volume and move it to the categories they should belong, which is our SMB business and our enterprise business.
And so, you know, our expectation is that, you know, we should, and I always kind of said this, you know, we should, you know, we're not gonna really, you know, you got, you got numbers coming out of Visa and Mastercard, and they're always gonna be a little different because of mix, and our numbers will be a little different because of mix when you go to SMB and enterprise. But we should fundamentally, you know, and I think we had, with the value-added services, we should be able to generally keep the pattern we have. We have, you know, we have software, and we have value-added services that are real. We're under-penetrated in all of it, in my mind, so that's the journey, and that's why I say, you know, this is super early innings.
Yeah. Okay. SMB is about two-thirds of the merchant segment now, and Clover's becoming a much, much bigger part of SMB. A lot of people ask us, you know, you did about $2.1 billion of revenue in Clover in 2023, so last year, and you're expecting $4.5 billion in 2026. I think it's, you know, over 25% CAGR. How do you get there?
Well, just keep doing what we're doing, because all you gotta do is look at our CAGR. But, you know, that's like the sentence, period. Now, we give the paragraph sitting underneath it. The paragraph underneath it is, we are not over-penetrated at all. Our distribution networks will continue to grow. Our penetration in our distributions will continue to grow. Our value-added services will continue to grow. So, you know, and then you got international expansion, you have ISV. So it's kinda, it's kinda, for me, very clear. I understand those are big numbers, but when you look at our total revenue and the size of the prize and our total penetration, it's really kinda basically doing what we're supposed to do, right? It's, it's, yes, it's work. You know, it's work, you know...
I'd encourage everybody, this lady's gonna kill me, by the way, this lady's gonna kill me, positively. I'm gonna encourage everybody to watch the Duke women's basketball coach on heart, on heart. You know, she's telling the team, you know, it, anything that is a really good outcome is hard, right?
You know, I grew up in a house where I just said to somebody, "Yes, I grew up in a house with some, you know, in a holiday dinner table with some Hall of Fame athletes," and they pounded into my head from a very young age, "The great athletes make hard plays look easy." Building Clover was not a simple chore, especially if you had First Data as the backdrop, but, you know, today, it's kinda, you know, forgotten about. So I don't... You know, it's our job to do this.
Mm-hmm. And, you know, when we think about Clover is still a little smaller part. So SMB is about two-thirds of merchant, right? And Clover's still a little smaller than the rest of SMB. Is a lot of this just moving the rest of SMB into Clover and doubling the yield 'cause you have more software and stuff, or can that part grow, too?
That card part can grow, too. I mean, I've been very judicious about not being early on on the back book, which I think people have all types of theories, which I've kinda shot down on why we haven't. But you know, we got a lot of distribution against the front book. There's gonna be a moment. I really think it's about an architectural moment to get there, which is, as we roll out Clover Dashboard, as we bring tools and people, Clover Dashboard can be used to do things while you're not on Clover, the natural adoption to Clover will be so much simpler. Obviously, you know, we have been very, very clear about, you know, early on, everybody was like: "Oh, that's back book volume," and then we came and said on Investor Day and-...
whatever year it was, you know, the second, not the last one, the one before, that we were doing 90% net new. More, more, well, you know, you're gonna have clients naturally wanting Clover, but the back book, the back book will, will not be at all fully penetrated within that number.
Yeah. Okay. And you mentioned the processing that you've now split out, right? It's only 13% of merchant. You do bank-
Only 13%. Remind me what that number is.
Oh, yeah, so in total, it's 6.5% of total. I mean, it's tiny, right?
No, I'm actually saying something different, like, you know, I think that's like a billion-dollar number, no?
Yeah.
That's, like, a big number where I grew up. I don't know. I didn't even know what that number... I couldn't even make that many commas early on.
But what's interesting to me about that breakout, right? You process for BofA, for Wells, for Citi, and there's this thought among, I think, the investor community, like, how is everybody, you know, growing well? And my thought is always, and maybe you can tell me if we're right or wrong here, those banks aren't as good at selling. So there's a huge pot of, I guess, volumes to go after for Clover and even for some of your competitors. Like, that pot, you make just little thin spreads, but there's a big chunk that you guys can go after there, right?
Well, first of all, I don't know if, I don't know if you know this, but, like, my whole life was in financial institutions, so when you say banks aren't good at selling, you're, like, talking about my family, so be careful, right? First of all, we love financial institutions on both sides. Banks are, like, one of our greatest distribution partners, and of Clover, right? And they were back in the day, you know, pre-pandemic, we would have Clover sitting inside bank branches, and it helped them actually sign us SMBs for a wider swath of that. And then we go do the merger, and really, one of the big premises of the merger was bank distribution, bank distribution, bank distribution. And I'd say that's still early innings, as hard as it is to believe.
Yes, we've signed up hundreds and hundreds, but we're gonna sign up hundreds and hundreds more. You know, the population that's never talked about or thought about very much is the ISO population-
Mm.
... right? And we love, you know, there's a tiering to it. We have agents that just go out and sell our products, right? But they're fundamentally agents of only us. Then we have retail ISOs, which fundamentally are only us, and then we'll have wholesale ISOs, which are a little broader, and that's where a lot of... There's a lot of processing volume coming in from them. They're kind of the, you know, the market that nobody recognizes, and you can't really tell whether that's a growing or contracting. And then you have ISVs also, which, you know, probably, you know, ten years ago, were some were ISOs who converted to ISVs. So yeah, I have this large swath, and, you know, many times we're on the front and the back. Somebody's distributing Clover and we're their processor.
And over time, you know, we've done a good job, in my mind, even when we acquired an ISO, of then getting them to grow. They'd go back to even the start of CardConnect and BluePay when we bought them, and we've done that subsequently with others, like Pineapple Payments. So, I think growth continues. You know, we pay a lot of attention to new business formation and try to be in that process. You know, we spend locally. You know, you'll find us, we feel like in many cities, you know, we should have the dominant share because of our position. We spend time with chambers of commerce and banks and anybody and everybody who could distribute us.
So, you know, it may be a longer answer than you wanted, but I feel like there's infinite opportunity in them hills, including in our bank partners' ability to double the size of their penetration with their clients.
Yeah.
Is that helpful?
Yeah, yeah, that's helpful.
Yeah.
So-
I know I talked longer than I should on the topic, but I spent a lot of time on it.
No, it's all good. Yeah, and I guess last question on merchants. So, you know, we've already talked SMB, the biggest part, growing really well with Clover, way above market. We talked about processing. Enterprise is the last quarter of the merchant segment. You're doing really well. You compete with Adyen and, you know, some other really big companies, but how are you competing there? Why are you gaining share here?
Well, I think there's multiple parts to it, right? You know, first of all, whether it's in SMB, or whether it's in enterprise, or whether it's in processing, there are great competitors out there. You know, I will always feel that, you know, the better our competitors are, the better we can be, as long as we keep our heads screwed on straight about innovating and staying in the client's office. I think, first of all, you know, our ability to be omni-channel is highly respected, you know, is highly respected. Our ability to be omni-channel and global is highly respected. Our innovation around Commerce Hub is getting traction, which allows us to be able to bring VAS in and really expand the pie for ourselves. And I think you'll continue to see us.
I'd also say, you know, as you look further in the future, you know, this, phrase, embedded finance, which, took me a while to figure out what people were actually saying, and I'm like: Oh, we already do that. We may just not represent it with a phrase, you know? Kinda like I was always saying e-com. We were the largest e-com processor, but that was by a construction issue, as we were a great partner with Bank of America, and they were a great partner with us. So I think, you know, ultimately, we're the only company that can, run a ledger, you know, for, like, Finxact and have Clover and have a gift product and have, you know, e-com, bring it all together. So I think there's tremendous runway as embedded finance takes off, for us to be an industry leader in it.
Great. And one thing I forgot for merchant, Argentina, we cannot forget about Argentina. It's about, I think, 10% of the merchant segment. It's kind of within SMB and enterprise. How fast is that just growing by itself without- like, if we take out inflation, we take out currency, 'cause there's so many movements.
Yeah. I mean, you know, it's... I'm glad that when you did that video, you know, you didn't instead play Don't Cry for Me Argentina. I was a little worried you said, "I'm gonna do a video or something," I thought it was gonna be the walk-up song here. And I'm glad we now got it down to the I forgot to ask question, as opposed to the main event. When you peel it all out, you know, look at, you know, Argentina is a country that you really gotta follow our history and to actually understand it. You know, it was a fundamental, you could call it, single acquirer market. You either acquired Mastercard or you acquired Visa. We spent time, and we're instrumental in getting that change.
That change, we brought Clover into that market at the same time, that was right pre-pandemic. And you know, we have a great business in Argentina, and somehow, like, you know, it's, you know, it's me talking to you guys, somehow that gets forgotten in this discussion. It is a very active market. And so, you know, and then we love to tell people, like, when you get to the bottom line, the offset to all the inflation and other stuff is currency.
Mm-hmm.
So, you know, when you get to our EPS, you get to, it's fundamentally net neutral. Some days I hear negative, but, you know, maybe even bigger on other days. And then when you peel it back, you know, I mean, you take it all out, then you take it out of the business, if you peel out all the excess, we're kind of above our high end in the company and in the, in the business line. So I just... I think, I think that's getting across. I know you guys have done a good job of understanding it. We probably got better at explaining it, but, you know, it's, it's on the other direction now, too.
Mm-hmm.
You know? That thing is kinda, you know, I mean, you know, yeah, we pay a lot. We paid through the election and through all of it, a lot of attention to Argentina. I think everything we told people it was gonna be and how we were gonna perform is what happened, and we're on the back end of it.
Yeah. But it's, it's still growing well, it's just decelerating. Is that, is that a fair way to-
Oh, yeah, it's a good growth market.
Yeah.
It was always, it was a good growth market before. It'll be a good growth market when the whole thing normalizes, you know.
Mm-hmm.
It's just smaller than the US.
Yeah, yeah. Good, and then the, the financial business-
By a lot.
Yeah, yeah, by a lot. The financial business, the other half of revenue, you know, this is kind of Fiserv's legacy business that grew well for decades and decades. It used to grow 3-4. You found a way to now make it grow 5-7. And so it's... What has been the catalyst? Has First Data come in, and the synergies there been just helped it grow fast, or what do you think about?
Well, I think that's... I think, first of all, you know, all these things are multi-prong offenses. You know, go back to, you know, the construction of the company. You know, if you really, I mean, I like to go back to this because, you know, people like to talk about strategy and how things happened. At First Data, we were an initial investor in Finxact. And so, you know, when we raised $3.5 billion, and we paid down $3.5 billion of debt, we kept $1 million and invested in Finxact. Like, that's a true story. And so, you know, why? 'Cause we had a debit network, we had a merchant acquiring business, and I believed if we had the capability, in my language, because I didn't...
In the institutions I grew up, the word core was never a word, it was deposit system and loan systems. I believed if we had that deposit and loan system capability, we could grow merchant acquiring better, grow our debit network better, and have an ecosystem advantage. I concluded on the journey that by the time that happened, we might miss markets, and so we did the Fiserv First Data merger. And so it wasn't in that merger that thought arrived, that thought arrived much before it, and the merger allowed us to accelerate. So the construction of the company, as I said, that you could go into a financial institution, you look at now, we're talking about Cash Flow Central, another new product. Another new product, remember, our merchant acquiring and our Cash Flow Central would be revenue at 100% margin to our partners.
That's a very strategic position to have to be able to do more with them, right? So I think we, you know, might have had a strategy which was fabulous, that lasted us very, very well, sell core and all the surrounds. Well, now we can start with merchant acquiring and get to a core opportunity, right? Bring our debit network in at a much larger scale than we had before. So I think the construction of the company has actually allowed it, and I'd say like that too, you know, I know it's five years old. We had a pandemic and a merger in that five-year, you know, kindergarten company, right? You know, if you thought about a five-year-old, they're generally in kindergarten, right?
You know, I think we got a lot of runway in that business and, you know, a debit processing capability, a bill pay capability, our ability to use our bill pay capability to think about CashFlow Central, a debit processing to think about more people in Star and Accel. And then, you know, the core sets at the center when we could come in, and that's a very strategic, privileged position. We have credit unions now we're talking to about merchant, you know, which was not something that they would've talked about before. And that'll just strengthen our ability to bring more value-added services in and grow Financial Solutions, if that makes sense to y'all.
Yeah. Yeah, and you have, you have one of the biggest, maybe the biggest, debit processing platform and credit processing platform, and you, you do both. One investor fear is Mastercard and Visa volumes in the U.S. have started to decelerate to being pretty close to retail. So that's been a little bit of a bear thesis on those stocks for some people, but for you guys, you know, while you have that, you might still have some of that pressure, you can sell value-added solutions and a lot of other things. Do you think, can that business actually grow just as fast or faster, even if, even if volumes come in towards retail?
Well, you know, look at, we've seen our credit business, you know, and especially on the subprime side, be slower. It shouldn't be a surprise to anybody. We get paid on it in that business, accounts on file.
Mm-hmm.
So, you know, volume, but our ability to bring value-added services really has proven out well, makes it stickier. I also. You know, we found a little bit of a secret sauce, in the ability to sell credit and debit to, to our smaller financial institutions, where in the last company, we didn't have that opportunity at this scale. So I still think, you know, our ability to grow credit over time, besides, you know, the wins we've announced-
Mm-hmm
... like Target or Desjardins, which are all not onboarded yet, is good. Is good. We feel, we feel, you know, good. I was with, you know, one of our big clients yesterday, you know, those are great relationships. So, yeah, I think, I think having credit and debit is valuable together, I think, and, and I think the merger actually brought that to a completely different level in this company.
Yeah. Yeah, well, you, you guys have certainly done a great job, and that's all the time that we have. But, please join me in thanking Frank and Fiserv.
My pleasure. Thank you.
It's great.
Good to see you.