Good morning, everyone, and welcome to the Baird Conference this year. We're very pleased to be hosting all of you. We're very pleased to be hosting Fiserv this morning with new CEO Mike Lyons, who's been at Fiserv a few months, and this is one of his first conferences at Fiserv. I think all of you know Fiserv has been one of the most stable growth businesses, really, in the history of the markets, quite honestly. I think this will be their 40th year in a row of 10%+ EPS growth. I've been here covering the stock for 20 of them, so it's been a pleasure. Maybe what we can do with Mike is just kind of kick off. Mike comes from PNC Bank and was very familiar with Fiserv, both the merchant side and the bank processing side.
Maybe you can give a little reflection on kind of how he viewed Fiserv while at PNC and now how he's viewing the company now as CEO.
First of all, thanks for having us. Good hype video to get the morning going. That was well done, well done by you all. Yeah, I think I would go back and say, even at the time at Bank of America, the last two decades of my career have been inside of Bank of America and inside of PNC, both big partners for Fiserv. I have gotten a chance to see firsthand the value we can add to banks in a world, and broadly financial institutions in a world that's increasingly dominated by technology, and the competitive landscape is changing every day on that front. We have 10,000 financial institution relationships globally, so the experiences that come from that are incredibly valuable. We have scaled operating platforms, which can be very valuable. We have a whole bunch of resources around the world, including 13,000 software engineers.
Our ability to help financial institutions in a world, I just mentioned to you before at the start, JPMorgan said a couple of weeks ago at their IR day that they're going to spend $13 billion on technology this year. The other 9,000 U.S. financial institutions, probably 20,000 financial institutions globally, how do you compete with that without help? That's where we think we've got a great platform, whether it's Cashflow Central, FinZack, XD, Advanced Defense, which is a fraud tool. All these solutions are built for a specific purpose of helping financial institutions modernize, grow, digitize, and compete in a world where technologies become paramount in the banking world. I think that's really what we're trying to do with the whole, what we call it, the client-first mindset. It's not that innovative, but go and understand exactly what our clients are trying to accomplish.
We've got all these resources within Fiserv across both the merchant side, but any type of payment side, and on the FI side, and then deliver solutions into companies that ultimately help them run their businesses better. Our belief is, and you can see it in the numbers, if we consistently do that and stay operationally excellent, you can increase average revenue per FI for a very long period of time. You go through the institution, as I've met about 1,000 clients over the last 90 days: it's 20 products, 30 products, 90 products, some with over 100 products. As the world evolves, technology evolves, the payments world evolves, the FI world evolves, we'll continue to expand what we offer them, again, trying to meet them where their needs are. It's a relatively simple model, obviously hard to execute, but you have the scale that we have.
I think it's a great business for a long time on the FI side.
Yeah, yeah. Maybe what we'll do, yeah, we'll start more on the FI side. I know there's a lot of questions about merchant. We'll get to that in a bit.
If we do all the Clover first, everyone will leave.
It's all good. On the financial side, coming at it from being a bank CEO, and you just talked about JPMorgan spending $13 billion, you guys do what, $9 billion to $10 billion in the financial segment, so it does seem like there's a lot of room. Do you think there's room for bigger banks to increasingly use you guys? Is there a big penetration story still?
Yeah, I was saying last week, I've been struck by the fact I leave every single this is both on the large merchant side and on the large FI side, or even regional bank side I leave every meeting with a laundry list of stuff to go back to the shop to work on and deliver into it. Our ability, again, to add value and help people compete in this world, it feels like we have a long runway to go on that. Big focus for us and this concept of average revenue—everyone knows ARPU, this is sort of our pick, average revenue per client. We can just, if we understand what they're trying to do and continue to leverage scaled operating platforms, it's the same play everywhere around the world. We just have to get in there, do our job, and deliver it.
Yeah. If we look at the backdrop today, you run an incredibly stable business, that financial business for years, I think in the global financial crisis, negative 1% organic, and in really good years, it's often 6%. I think this year you're guiding 6%-8%. Maybe talk a little bit about the financial backdrop, does M&A picking up help, CPIS, inflation escalators, what are the few things that move it either way right now?
I go back to this just incredible pressure on technology. The demand from clients, consumer clients and corporate clients, is for greater access to their financial institutions, and the appetite for ease of transactions, modernized payments, stability, resiliency, automation, digitization is unending, and the banks have to deliver into that. You take this FI business, yeah, it's a slow and steady grower, but long-standing deep relationships, mission-critical software, what we're providing them, it's not like they could just shut off us and turn on whatever they have in the back office. They don't have it. That's the opportunity for it. Our ability to deliver it cheaper by leveraging the scaled operating platforms and the ability to make these into highly recurring revenues with attractive margins is right in front of us. We do business with 10,000 financial institutions globally, 5,000 in the U.S.
Over 3,000 of the ones in the U.S., we're in the privileged position to have the core operating system for, which gives you the chance to deliver all the value-added solutions. That's not just on the FI side, but on the merchant side, as you put the JVs through and the like. Again, average revenue per client goes through it. We're going, it's like five or six major growth initiatives we've got going on the FI side. We're modernizing the U.S. cores and consolidating them down, 16 to 5. One of those five is FinZack, which is a totally modernized cloud-based API core, headless core, we call it, that's getting great traction in the market, both as part of a non-traditional bank strategy and outside the U.S. as our go-to core. Third big thing we're going after is embedded finance.
The shift in our business from merchants wanting to be banks and banks wanting to be payments companies is pretty interesting. With some of the recent deals in the market, we're the only company left with the construct of merchants and FIs under one roof, and we're leading into it. We think it's the play, not the opposite play. It manifests itself for us in embedded finance. You've seen some of the headline deals with DoorDash and then Walmart's OneFinance, which is growing at an incredible rate. That embedded finance platform is FinZack, and then it's the card issuing platform, which is another one of our big growth initiatives, and then the recent acquisition we did with Payfair. You put those three together, we think we've got a totally differentiated embedded finance platform.
To be able to go out and stand up a ledger and turn DoorDash into a mini bank for their drivers, that type of stuff can play all through the economy. We're hearing the demands for that from more and more people. Modernize cores, leverage FinZack, go after embedded finance, leverage this position in our leading global position in card issuing. XD, which is the new digital platform, we're rolling that out. Still have to get it into more and more banks, but it's done and rolling out. The last one, which is probably one of the more exciting areas, is Cashflow Central, which we view as sort of the killer app for cash management of small businesses, which banks have never been able to solve.
At times, yeah, it can be boring versus the merchant side of the business, but we see a long runway of just growth if we do our jobs. We have all the tools to do it. This shift in merchants and merchants trying to get into the banking business and banks trying to get into the payments merchant business is a good one for us.
Yeah. And this kind of gets at the First Data and Fiserv merger. I can't believe it was six years ago already. Since the merger, this Financial Solutions business has been growing kind of 5-7, 6-8, I think, this year. It used to grow 2-3 often. Maybe describe a little bit, what did the merger do, and is there still a lot of room for the synergies to play out?
Yeah. I mean, I think the merger is sound. It's proving to have been a sound combination of the businesses. It's just not a lot of separation. You go into a large FI, and we had a meeting last week. We go into them, and we've got this FI had 32 or 33 products with us, been with us for 30-something years. Every year, we had five products. In this meeting, they have not been able to reignite their small business growth strategy. You go in, we show them Cashflow Central, we show them Clover, and you start two minutes into the meeting, you're no longer like you and I, because you do your segments and we do it. You're in the FI world and the merchant world, but you go in and talk to a bank about helping small business customers. This is client-first mindset.
Within two seconds, you're no longer in any of our worlds. The client certainly does not be like, "Okay, I'm going to shift over to the merchant side of the table and why don't you tell me about Clover." They just want to hear about how they can do more business with their small businesses. The small businesses are telling them they want an integrated suite of products and services that is highly intuitive to use and highly accessible. That is what Clover is. When we put Cashflow Central into Clover, it sort of starts to increase the base of it. The world is shifting. Banks, not every small business walks into a branch anymore and says, "Hey, I'm going to start a small business." I like that they go to the internet with ISVs. They go to Intuit. They go to all these other ways.
How do you get 10,000 banks in the U.S.? Highly, highly profitable customer segment. It just goes to your question of this is far more symbiotic than it may appear to the world. There is not the 11th floor at the headquarters for FI and the 12th floor for merchant. They just start to mesh into each other. Now the merchants are saying, "Hey, I want to stand up a ledger and pay my employees. I want to stand up a ledger and do my own embedded finance." We like it. We are going to lean into it and keep rolling with it.
When we look at the business, I mean, we do like to look at the subunits. There's the issuing business within financial, there's the digital business, and there's the core banking business. With the wins of Verizon and Target in the issuing business and Cashflow Central and digital, I mean, could those units actually grow into the double digits at some point just based on the backlog and pipeline, et cetera?
Yeah, I think not to go back on the second question, but I think the first thing I'd point out is, again, the three segments within FI, if FI and merchant merge together, the three segments within FI start to merge together. We don't think about them as three separate segments, and it's hard to have a conversation with our clients as three separate segments. Sometimes, obviously, our clients, sometimes I don't even know which products we put in each. The core is super. The core banking, obviously, it's been the legacy business. It's a little bit slower growth, nice margins, highly recurring revenue, very competitive market, but it gives you the chance for all these surrounds.
Issuing, we talked about, we've got a great position in issuing, one of the leaders globally in it, 25 of the 50 largest issuers in the U.S., 80% of the private label market, which starts to have that feel of merchant and bank together. We go global in the issuing business, six of top eight in India, two or three of the top five in the U.K. That's been a good business for us. We're investing into it. We think the competitive landscape's interesting there and potentially opportunistic for us. There is an opportunity to grow there. We've invested in two platforms, Optus in the U.S., and we're super excited about Vision Next, which is almost ready to launch. We got our first win, which was a U.K. bank called Vanquis, but our ability to take Vision Next globally.
Yeah, we see a good opportunity for growth on the issuing side. And then on digital side, to your point, it's got some of our more exciting new products in there, both, I would point out, Cashflow Central and then underappreciated, but maybe has climbed out from under the rock is our debit networks on the heels of the Capital One Discover transaction. We think there's a lot we can do in the payments world with Star and Excel. All of it's embedded in the 68% guidance. We don't try to parse it through, but I think you got to think about it. Pretend you're in the client meeting with us.
We do not say, "Hey, we are trying to grow 10% this year in this segment, so I need you to buy some of this stuff." We are just saying, "What are you trying to do?" This most recent client said, "I want to grow my small business base." That brings in Clover, that brings in Cashflow Central, it brings in Commercial Center, it brings in Advanced Defense. Back to that client-first mindset, understand what they are trying to do, and you have to listen, be with them, listen. This is basic sales techniques. Go back into a shop with massive resources and massive product sets and put together a solution, promptly deliver it, and stay operationally excellent. If we do that, it just keeps rolling. It is a beautifully virtuous cycle, but obviously takes work and execution.
Yeah. Great. Maybe last on financial, just the stablecoin and crypto that's in the news a lot. You're in an interesting position with both merchant relationships that could accept some of that at some point and banking relationships with consumers that could hold it in their accounts. You're in an interesting spot. How do you see it develop and how do you play in those?
Yeah. It's a great example, back to the client-first mindset. To your point, we're hearing from financial institutions, what happens if one of the acts pass and we suddenly have to stand up wallet and custody and we're told to do it in X number of months and boy, that seems like a significant investment. We're hearing from merchants about, "Hey, maybe something gets done off the rails and maybe that's got less interchange." That is interesting to us. How do we stand this up? For us, it's a great opportunity that plays right into our strengths of understanding what our clients are doing and present a solution to them.
In, I don't know, next week or two, we'll come out with something that talks about standing up some infrastructure to support all of our core clients, which is a significant base of the U.S., to give them the basic capabilities to custody, create wallets, move P2P on stablecoin, and then same thing on where we do business with our merchants, help them develop the capabilities to do it. I don't know if it's specifically stablecoin that's super interesting, but what's super interesting to us is with each development, this is where I go back to the start, as technology changes the world, somebody needs to help. How does a credit union in Colorado stand up a stablecoin wallet? We love that. We'll stand, we've got all, and again, how do we do this? It's got FinZack in it. It's got Payfair in it.
You've got a core in it. You've got Merchant Solutions. Obviously, our Merchant Solutions business, you've got Carrot in it. It's got all the tools we have. We've got, as I said, 13,000 super smart engineers, and you give them a project and they can stand up a solution really fast. That to us is sort of what we love about the business and the opportunities that show itself. That can go to Agenda Commerce. It can go whatever it is, whatever people want to monetize and do, we can stand up and do it. On the payment side, it's nice. It doesn't have to be on a specific rail. Our merchants want to facilitate sales. Our banks want to win new customers and make them happy. That's what we're going to put solutions in to do it.
Yeah. Yeah. If we move to the merchant segment, the other half of revenue, the street's gotten a little uncertain around, we've talked about Clover and just that industry in general, just the multiples have been quite low. When you walk in and out of Fiserv, do you think is the investor community just too negative on what seems like a pretty good growth business?
Yeah. I mean, Clover is a great business. It's got a really strong growth outlook, and it's going to be an important part of our story on all sides. We've already talked about it on all sides of our business for a really long time. Yeah, walked into a bit of a firestorm on it. I think what we've said and what we tried to say over the last couple of weeks, we've tried to highlight the puts and takes that impacted volume in the first quarter and then tried to give some flavor on the second quarter. I don't have anything new to add to that. I think the key takeaway is if you exclude the gateway conversion, Clover volume growth has been in the low double digits for a sustained period of time. That's what we indicated for Q2.
At least as the new guy coming in and studying the business, as I said, it's a great business. The growth, ex the gateway conversion, looks really stable. We haven't seen a deceleration in growth, excluding the gateway conversion. We haven't seen you go through all of the other Clover KPIs. We had another regular update on Clover yesterday. There's nothing indicating, flashing in some section that there's something broken about the business. Actually, we continue to perform well. The competitive landscape is the other thing we've heard hasn't materially changed. I mean, I haven't been, I've only been here for a short period of time, but you talk to any of our people, it's been competitive. We have great competitors and it continues to be competitive. There hasn't been a major change there. We don't feel any saturation in the market.
We just opened to announce the opening of a new facility for a lot of our employees in Kansas City. You go to Kansas City, we do not have anybody selling Clover in Kansas City. It is not like we have tapped out every part of it. Again, we think it is a great asset. The revenue growth that we did in the first quarter was in line with the expectation that they had come up with to get to $3.5 billion. We are going after Clover growth. We spend our days when the true operational meetings we are in, there are sort of five, we go through Clover in five different areas. The build-out of the horizontal capabilities, that is Cashflow Central into it, that is ADP into it. Then there is a number of other capabilities. I go back for a second. I tried to explain this last week.
What the banks and the SMBs are telling us they want is this highly integrated suite. They do not want to make 20 phone calls to run their business. They're already the CEO, the CFO, the CIO, the CEO. They want a very intuitive, easy-to-use set of software. They do not want 1,000 apps and a thing that they have to search through and the like. They want payroll. They want payments processing. They want employee management. They want insurance. They want taxes. They want accounting. They want website setup, really basic stuff. We are in the process of filling out. That is what the ADP thing is. We could have gone out and bought a payroll thing to stick on there. We went out and got the number one payroll provider in the U.S.
and created a partnership with them and increased our distribution on the back end of it. We'll have several other announcements to continue to build out the suite of software, but that's what we're being told they want. Horizontal build-out is huge. Cashflow Central in there is incredibly important because they've never gotten a tool from the banks that is an effective cash management tool. We did it, same thing at B of A, BNC. We tried to port down a middle market, upper middle market cash flow solution, and they just drown in it. One is too expensive. It doesn't have the functionality. Cashflow Central, we're building it with Melio, great partners, incredible engineers. They have built the app that small businesses want. We got to finish it and get it to them, but that'll be super important.
Every bank partner we have and every small business we have and us will look at a screen that has every receivable and every payable on the screen. How that multiplies, what you can do with Clover Capital and the like. I've spent my life lending on deep interviews, financial statements, a fax of a copy of a fax scanned, mailed in a broken down thing. That's what you get from some small businesses. Now you see every payable, every receivable, real time. That's a great product. What we're trying to build is the horizontal, build out the horizontal thing is number one. Second, we're trying to build out the verticals. We're hearing increasingly it's got to be specific to me. We had a great business in small restaurants, but getting beat by somebody else in the upper restaurants.
We introduced Clover Hospitality and put the functionality in to put us in a position to compete. We're going to come out with something on healthcare, something on professional services. We already were strong in retail. Third big area is the international growth. Our clients, we're an international company. Our clients internationally want Clover, and so we're giving it to them. We've launched in five countries this year. Brazil is probably the most interesting. Fourth is just better operational excellence. You go through those KPIs I talked about. None of them are running at your awesome meter where you're doing everything perfectly right and there's nothing left to do. We're trying to pursue operational excellence. The final piece is just continue to expand the distribution channel.
We think because of the bank partnerships, for sure, but then hundreds, if not thousands of ISO partnerships, agents, now ADP, just how many different ways can you have people distribute Clover for you for no cost? All of that is important in what we're trying to do, but I think your question was right. It's an important asset. It's going to be a good growth engine for us for a long time.
You've talked about $3.5 billion of Clover revenue this year, $4.5 billion next year. That growth next year, close to high 20% growth, volumes low double digit, revenue high 20%. There's a pretty big gap. Is that value-added solutions? If companies use those, are they more sticky? Meaning your clients do not leave once they do the value-added.
Yeah. I think the most often question we get around Clover is like, "Why don't you drive some more of this?" or "Why don't you drive some more of that?" It goes back to the point I was trying to make, which was it is an operating platform for small businesses. Every small business in different verticals and in different countries, based on the rules and going through some of the nuances, we want them to use the platform in any way that makes their business better. We do not wake up every morning with some set outcome that you should do this and do that. Same thing with your question around banking, issuing, digital. We just want to bring solutions to banks. We are giving this operating system to small businesses, and we want them to engage in it as much as we want.
If they engage, if we can listen to them and continue to put on the platform all the solutions they want, naturally, we want them to buy as many of the value-added solutions as they can, and the gap between revenue growth and volume growth will be high. That is okay. It will differ a lot by countries. You have Brazil and Argentina settle sales T plus 15 and T plus 30. There is no small business in the world who can process a sale and wait for 30 days for the cash to come. They use anticipation. We do not wake up in the morning and say, "Let's go grow anticipation." It is just how the client engages with the platform.
Yes, if they engage with the platform in ways that they think are valuable to their business, one, you get paid for it, and then two, they tend not to leave, which one of us leaves a product that we like and use a lot. I think the idea is to continue to build out the suite of value-added products and services and then put it in a way that it's easy for them to use. We have on growth item number four, which is operational excellence, ground to take. We have to execute it. We can make the experience better. We can make the software better. We can make it easier to use. We can make the customer service better.
are all kinds of things we can do to help that, but we have to continue to build it out and then put it in their hands to use in any way they want to use. I think it is relatively well time-tested that they will engage in the products and services. Our VAS today is well below the VAS of some of our peers. We think ADP is going to be a strong growth area for VAS and all the products that come alongside. Other products we are going to put on the software suite alongside those. Clover Capital is an area where we have not executed as well as we should have, and we have been very, very conservative in the platforms. Good opportunity there.
There's a lot of VAS to still put on the platform, and there's better work to do with our current VAS to get our customers to use it in a way that's valuable to them. That should drive the net outcome of that as you should have revenue growth and excessive volume growth.
Yeah. I mean, it's huge growth at Clover. One question we get increasingly is, okay, if Clover is growing high 20s and the total business is growing, I guess you're guiding 12-15% this year, what's happening with the non-Clover? Is that declining? Are you increasingly pulling non-Clover clients into Clover, which hurts? How is that balanced? Can non-Clover grow?
Yeah. Non-Clover is about $4 billion in revenue. So it's sizable. It's still growing. They're small businesses. And if a small business wants Clover, we get them Clover. We don't deny anybody Clover. But we've been careful, I guess it goes back over time with messaging between investors' street that not to flood the system with backbook conversions. And we've left it open. 2026, we've talked about we've been testing backbook conversions, but we haven't done any broad-based efforts around that. We've tested them inside the U.S. and outside the U.S. And over time, we've had some, we've learned stuff as we go. And I think we haven't done anything significant to date, but as you go into 2026, you'd see more focused efforts to convert backbook into it.
Again, there'll be some base of customers where they don't want a full Clover platform and they're not going to use all the software and services. We think going forward, Clover is clearly the platform for small businesses that will be Fiserv's platform for a very long time. Eventually the back book will get to the Clover book.
Yeah.
Even more importantly, on the enterprise side of things, we continue to invest in Commerce Hub, which is the front end, which is the gateway for large business. We will eventually put Clover into Commerce Hub so large enterprises can take advantage. Big companies, big merchants today do not use Clover, but over time you can do that. Again, we are not sitting here having drained the ideas for Clover growth. It is a good asset to grow for a long time.
Yeah. Yeah. And maybe one last question. Organic growth in merchant was 8% in Q1. Full year guide is 12-15%. Was there something in Q1 specifically? I know Argentina rates, prevailing rates came down from like 100% to 30% year over year, and they're stable the rest of the year. So maybe that helps. What gets it to 12-15% for the full year?
Yeah. Argentina helps. We had the big termination fee in the Caribbean. You've got Clover, obviously, accelerating. Commerce Hub continues to grow, bring new merchants into Commerce Hub, and the rest is just core organic growth. You've got it right. Some of the comps get easier, largely because of Argentina.
Yeah. So when we put it all together, I mean, it seems like backdrop is, if anything, good. It's quite good, stable and good.
The macro?
The macro, just your backdrop in general, demand, etc.
Yeah. I think on the business side, we talked a lot about it. We did the Fiserv Small Business Index. You put your pitch out before the thing. This is our pitch for the Fiserv Small Business Index. We want to get it like the ADP Jobs Index. But we put that out yesterday. May was basically in line. Up 3% year over year is basically in line with the 3% growth. It was 3.3% in May, 3.2% in April. So it was in line. First quarter was 4.3%, so 100 basis points down on the Fiserv Small Business Index quarter to quarter. Interestingly, we've gone through a long period of, and we haven't drawn any conclusions from this, nor has the FSBI team, but we've gone through a long period where foot traffic has been up and average purchase has been down. And this month it reversed itself.
Foot traffic was down and average purchase was up. We caution about any, we certainly haven't drawn any conclusions to it, but it's different from the last couple of months. We took note of it.
Yeah. Good. That's all the time we have, but please join me in thanking Fiserv and Mike Lyons.
Yeah.
Thank you.