Guys, why don't we kick it off again? I'm Darrin Peller from Wolfe Research, covering payments and fintech. Really happy to have Frank Bisignano, CEO of Fiserv, with us today. A name that we spent a lot of our time doing research on and we've been recommending for some time now. Also happy to have Bob Hau, who's the CFO... Oh, there he is, in the room. I know investor relations, Heather and-
Julie.
Julie are here also. There they are. Guys, thank you all for joining us. Really appreciate having you. There's probably no one better to ask about the financial system and the chaos we're going through with SVB and with Signature and others than Frank. I mean, he's been through such a background on different financial crises, banking crises, that I think your perspectives would be welcome. Before we even get into Fiserv, maybe just a quick update from you on what you're seeing in the, in the landscape.
Yeah. You know, everybody talks about 2008. You know, I'm sure people are thinking about 2008. You know, I'm old. I was buying banks from the RTC in 1990 and understood what bank failure is. That was the S&L crisis, actually. I think these things, you know, have lots of different attributes. You know, I, last week, was in Pittsburgh, was in Topeka, Kansas, was in Springfield, Missouri. We sum at Missouri. Have a client in Raleigh, North Carolina. You know, they're not really focused on this. I only started asking this question today, like, what happens in a bank on Monday morning, right? You know, somebody says, "Hey, that's when bank management has their management committee.
Well, before that, they have an asset and liability committee meeting. That's every bank I've ever known and that I've been in, and I would think that's true for our clients. You know, when you go see a less than $10 billion bank in Topeka, Kansas that was run by a grandfather and then run by a father and then run by the son, that bank really has not veered very much from its ways. You know, I had dinner with a client last night that, you know, kinda talked about their business, and over the weekend, nothing changed in their business. I'm not saying we don't have a problem in the system, but, you know, I think, you know, there's a lot of very strong ins.
You know, when I think about for us, it's not the majority. Whatever is the 90+ percentile of the institutions we serve have not veered from how they thought about their ALCO committee, their ALCO structures, and what they do to run their bank. Yes, we're a key partner for them many times in their digital transformation, not in changing banking the way, you know, it happens in Pittsburgh or in.
Right
Topeka, Kansas. We have a playbook. You know, one that I remember from the 1990s we used in 2008, it's really about, you know, how you batten down the hatches, how you protect the franchise, how you take care of your client, you know, what you're prepared for during a crisis. You know, we'd meet at 7:30 A.M. in the morning, that would be true on Sunday morning, which was probably 6:30 A.M. in some people's mind. Our team in California, it was more like 3:30 A.M., get back together late that night and make sure we're doing that. What was interesting, I was in these clients' offices on with bank CEOs while it was Thursday.
Yeah.
Obviously back home we were shoring up the defense and thinking about offense. The bank CEOs weren't distracted because they were concerned about, you know, what was going to happen. Yes, there's a list of names, and there's always a list of names. I've never... You know, I'm not proud that I'm old, but I've been through a bunch of financial crisises, and there's always gonna be a list of names, and there's always gonna be actions, and there's always gonna be regulators. Then there's always gonna be people like us who are figuring out how to serve our clients really well and go on offense for our clients' benefit and our shareholders' benefit.
What do you think? I mean, you know, we now have seen two banks, step, you know, fail, or closed.
They got closed.
Yeah. When you think about.
I'm not sure, I'm not sure some people are declaring they failed.
All right. Either way, I mean, in terms of the ramifications on the system for your other customers, have you seen anything changing?
I would say, like I said, large majority, super large. Whatever high 90% is, I don't know, it feels like that's even past super majority.
Yeah.
Their volumes on Monday in and out were exactly the same.
Okay.
Whatever names everybody here has on their list, their volumes were higher. Our client base, many of them see opportunity. Opportunity, you know, to do more with clients in their, in their regional jurisdictions.
Frank, I mean, just speaking more specifically to Fiserv then. I mean, you guys, I think you do core processing for SVB for Signature. Again, we've estimated it at probably less than 0.5 % of your revenues, but it's probably not that material. Maybe you can put more color, I don't know?
Yeah.
Regardless.
Well, we do SVB DINB is our client, right? They were SVB, and now they're Santa Clara.
Oh. Oh.
The bank.
Yeah. You're still helping them out, in other words.
Well, no. You know, the way this kinda works, and maybe it's useful to talk about it because, like.
Yeah
You know, if you're old like me, you've been doing this stuff for a long time. I used to do it as a banker.
Sure.
I have the benefit of serving thousands of banks across America. You know, they all have a different flavor. You know, the FDIC steps in. They come and run the bank, and you know, we talk to them, you know, and they say, "Hey, continue doing everything you're doing. You know, you should go.
You're gonna get paid for it.
You, and you're in business with them, and we're not gonna continue to do that unless we get told to, or else we're gonna create risk in the system. We're pre- you know, and that's part of the playbook.
Okay.
You know, your number is significantly higher than accurate.
Okay.
You know, today, in some strange way, we actually are doing more for them than we were.
Interesting
than we were on Thursday.
That's interesting.
You know, remember, you know, if you wanna take 2008 and think about today, I don't think it's the same thing. I'm not really sure what thing it is. It has all types of characteristics, you know, we get paid for transactions and accounts, right? From 2008 to today, only one thing's happened to transactions and accounts.
Sure.
They've completely significantly grown, right? You know, our expectation is that that will be true, and our expectation is given the company we've built through this merger and the investments we've made in technology and the digital transformation, that the first thing was to do, to play defense, make sure the defense is shored up, make sure we know how to get everything we need to do during a semi crisis or at least a crisis at SVB. Once you've got everything locked down and you're lined up with, you know, your new client, right? Like somebody like Bob-
Yeah
the other day said, "You know, our new client wants to know if we could do this." They were talking about, you know, fundamentally the FDIC. I was happy to hear that's how. They're our client now.
That's interesting.
Then, you know, ultimately those accounts, no matter what happened, are gonna end up somewhere. Given our market share and given everything we do, I expect to be servicing more accounts, not less, and doing more transactions.
Okay.
Remember, you know, we had a growing relationship with Signature that was very strong. We weren't their core.
Okay.
You know, I think the macro is like, yeah. If, you know, like Bob and I would say, if you go back to 2008 and use what we use as organic growth, obviously that Fiserv and this Fiserv is a completely different company.
Sure.
Has all the good bones that original Fiserv had. That, that year revenue went down 1%.
Right.
Um, and that was-
A lot worse.
a pretty big-
A lot worse than this.
a pretty big problem.
It sounds like you're what you're seeing in terms of your exposure and you're seeing in your customer base hasn't changed your view of your capabilities on your targets for this year much.
Oh, not at all. Not at all.
Okay. If we go back to the recent trends from last quarter for Fiserv, I mean, they clearly continue to show strength across the industry across all segments, but let's just go into a couple of them now. I mean, merchant and your acceptance segment, you know, has been leading the industry across the board on revenue growth rates. You're seeing the benefit of not just sound volume and you know, some mix improvement, but I think pricing and just your ability to offer more Value-Added Services.
Yeah. I mean, look at. You and I have been talking about this business for a long time. You know, I remember when we didn't have a Clover in market. I'd say, "You're gonna see Clover all over." You were kind enough not to laugh at me, but a lot of people did laugh at me.
Yeah.
You know, I think today, I have tremendous respect for all our competitors, today, you know, we continue to believe our job is to grow merchants and, you know, bring more services to merchants and fundamentally ARPU and LTV. I think that journey has proved itself. I think, you know, the assets we have hang together very, very well. One thing I believe across all of Fiserv and it's true in the merchant business, but it's true across the whole company, but I think specifically really, really true in merchant, we have the best client base in the industry. You know, if you got the best client base in the industry and you're continuing to grow with them and helping them grow and bringing more product to them, you know, this flywheel effect has really taken hold.
You see, you know, we came out and we felt very committed to, you know, take every question about merchant off the table. In March, we stood up and talked about, you know, that $10 billion business and the $3.5 billion in Clover.
Yep.
You know, we feel great about that trajectory, and you should expect us to do everything we said we're gonna do.
The underlying drivers in merchant, I mean, you mentioned some of them, Clover, Carat, obviously, and eCom and omni-channel more broadly. International has been a strong point for you guys, right? I mean, just touch on those drivers for a minute. Maybe you can go through each one of them in terms of the trends you saw last quarter, and if you see those trends sustainably over the next year and beyond?
Yeah. I mean, look it, I'm of the belief, that, you know, our ability to grow and continue to grow because the pie is so large, right? We don't have to grow really at the expense of a competitor. We can grow because we bring more software and services. I do think that the ability to take all the software and services in Clover, and our industrial strength nature and our global footprint, and that means what we can do in Brazil, in Germany, in the U.K., you know, and I could go on to Australia and continue to go, gives us, you know, the confidence in what we're doing.
Really, if you look at the amount of capital we're deploying in these businesses, you know, we're not, we're not at all concerned about continuing to grow software as a service for our client base. We're not at all concerned about going into geographies and continue to bring more capabilities in Brazil, in Germany. You should see it grow. I think, you know, we're very focused on how to have Carat be best in class.
Yep.
you know, we definitely know where that heavyweight fight is, as we knew where the heavyweight fight with Clover was. We respect all our competitors. We think, you know, we really believe that we can also, you know, address growing TAM because we're gonna bring more capability to our client base, and they want more capability from us, you know. If you wanted to think about a phrase for the large institutional clients for us, you know, embedded finance. How do we take all of this and bring it to them in a way that allows them to.
Yeah
more with their clients?
You know, Clover was $230+ billion of volume last year, so it's not obviously not small anymore, and it was still growing over 20%, right? When you think about the trajectory and ability for that to keep growing at a healthy rate and support overall merchant growth, what's gonna drive that? I mean, you seem like you've reached a bigger base.
Yeah.
I mean, I don't think you've gone to the back book yet really much, right?
No. You know, I mean, it's this, you know, was really hanging out there with a supply chain challenge. You know, I think I passed the IQ test, which was, would you prefer to get a new client with this piece of software and hardware, or would you rather sell it to a current client? Any current client who want it, got it. You know, deploying, then managing through the supply chain, you know, we never ended up with a client issue through that supply chain. We invested a lot of capital early on-
You bought a lot of stuff.
on everything from buying chips for inventory.
Yeah
to buying months and months of inventory, which was not cheap, but I think was the right thing to do for the P&L of the company and for our client base. I mean, ultimately, we run a client franchise. I think when you think about, okay, yes, the back book at some point will have an attack plan and maybe sooner, not later. You know, in our growth algo, that's not really part of my growth algo. The growth algo is more merchants, more services to merchants, longer lifetime value, you know, and continue to drive that. I think we got clear trajectory to it. You know, so I mean, I know people look at the big number and go, "Wow, that's a lot," and you think you could still grow that amount. The answer is yes and yes and yes.
You know, I think, you know, I see lots of large institutions I've been in my whole life that grow very, very well, you know, even when you got a big revenue number up top.
What you're seeing now is still the sustainability of Clover.
A 100%.
When we think about what we saw last quarter, this big, big spread between your revenue growth in Clover and merchant and volume growth widened out even more. What's driving that value-added services benefit or pricing?
Yeah. You're, you're doing a good job of not using that other word, yield, the one I won't talk about. You know. But look, I mean, I mean, look at, you know, software has become a component, and you look at that software spread and the penetration of Value-Added Services is really matters.
Yeah.
Then when you look at, you know, like I've always tried to say, You've heard me on this for years, Darrin. Like, we have an unbelievable portfolio that is very well-balanced. You know, like you saw on Investor Day, we have $1 billion of revenue from processing, and that's a volume number that the increment on that dollar revenue is sure different than, you know, a direct Clover merchant.
Yep.
Sometimes that volume to revenue gap, you know, has lots of components. When I'd say that in the old days, and, you know, I'm old, so everybody could wonder when the old days were, you know, people thought it was like an excuse for, you know, a number. It's just kinda reality, and that's why I loved that merchant investor day to recognize we do have this $1 billion of processing revenue. We don't see it as a big grower, but it's sure good base, and that'll have volume fluctuations to it. I'd put our software penetration and VaaS at the top of the list.
A lot of that is Clover, right?
Yeah.
Not all, I guess.
A 100%. Yeah.
Okay. Moving to fintech for a moment. I mean, again, an area that you obviously made an acquisition that's been helpful on more real-time cloud-native core processing, right? Finxact.
Yeah.
Just touch on the dynamics there, what the trends are that you're seeing in that, in that business, especially now with, I think, banks. Are the banks gonna kinda take a pause, or is that really unrealistic to think?
Well, I mean, I like to get through this week and figure out what really the heck's going on. I'm not. you know, I was, you know, concerned yesterday morning. I'm as concerned this morning.
Yeah.
let's see how this manifests itself. I'm not prepared to make any-
Okay
predictions on these type of things. I think the bigger strategic question you're asking is what are financial institutions looking for in terms of capability? You know, we had a very good real-time core in DNA that we believed in a lot, and that's really what's been fueling growth. Finxact is not a growth engine yet, but it has definitely attracted more clients than probably any other defined cloud-native core out there. I do continue to say, you know, that 4 - 6 that we guided to-
Yep
did not contemplate a contribution from Finxact in any real manner. At some point in time, we'll come back and talk as Finxact continues to show strong traction, but not at the expense of our client franchise, that, you know, we should talk about what we think the future growth rates for that fintech segment are.
Okay. Moving to just payments for a moment. I mean, There's a combination of areas, but whether it's bill payments or it's our issuer processing, I mean, do you think you have the right assets to do what you need to do in those categories, and how are the trends there?
Well, you know, let's kinda tick down the stack a little bit. You heard us talk about, you know, Target and Desjardins.
Yep.
That was off of the back of, three other large wins, and us talking about $120 million. I actually saw one of those CEOs that we onboarded, last night. You know, we had a wonderful talk about how great his conversion was and how that business is growing. By the way, there's somebody who says, you know, they didn't necessarily see anything change in their business from last week to yesterday.
Yeah. Yeah.
You know, we see a lot that we're engrossed in, but there's a lot of the country, you know, continuing as they were the day before.
Sure.
None of that's lost on me. I don't think O8 had that feeling or effect. I think our issuer processing is very, very strong. I think what we have in the combo of STAR and Accel and how we bring that to our institutional clients really is helpful to their business model. I think you're gonna watch us continue to invest in Bill Pay and roll out some capability in the SMB space that we hadn't had before, which really is an open opportunity for us. And, you know, we continue to, you know, serve our client base in this space. I think, you know, our clients are very bullish on payments.
You know, if you think about how we organize the place with a banking division, RM focus and ability to deliver the full franchise to our banking clients, these capabilities are very, very large.
Okay.
You know, we feel great about our growth rate. I think, you know, we ended the year strong.
Yep
you should expect us to continue that trend.
That looks good for the year two. Putting it all together, when we think about the guidance you gave, I mean, I think it was 7%-9% organic revenue growth, 12%-14% EPS growth, right? Just touch on the assumptions you built into that again, the macro assumptions. Doesn't sound like anything's changed from your confidence level around it, but?
Well, I mean, it's an interesting comment because, like, I thought about this just sometime, you know, between, you know, I don't know, over the weekend, whatever time we weren't battening down the hatches and preparing for offense.
Right. Right.
I was like, well, we had 7%-9% with a mild recession. I'm trying to think about how this is playing into that.
Yeah.
I don't feel bad about 7%-9% with a mild recession right now. I kind of feel generally good about how that top's performing. You know, we gotta take a deep breath and see what happens this week. You know, we did say, without a mild recession, we thought, you know, we had the opportunity to be at minimum on the high end, if not, you know, do something else. You know.
You see the macro, how things shake out.
Yeah. Yeah.
Good. You know, when you think about what's happening in the market now, though, I mean, there's been questions we're getting overflow of deposits to maybe larger financial institutions, or spending changing, you know. Does that change your views and your priorities on investing going forward, maybe trying to move more upmarket or anything else?
Well, I mean, I don't know about trying to move upmarket because I think what you've experienced from us is wins is at a weak class that we didn't compete all that much three years ago.
Right.
I think we already had.
You're already there.
began starting that journey. We haven't mastered that journey and, you know, these are long cycle deals that, you know. I think our capability to, and our propensity to want to serve all financial institutions is very, very high. Specifically, where some of us came from, you know, larger institutions are pretty normal to us. I didn't walk into a meeting on Monday morning and talk about how we're gonna spend less or do less because of this. I actually talked about how we're gonna spend more time with our clients and do more with our clients and create more opportunity to grow. That's kinda what's on my mind about what's going on right now.
Okay. Frank, you've told us, I think Fiserv has had, what? 38 years, including this year, if I remember correctly. This will be the 38th year of double-digit EPS growth for Fiserv.
Well, we booked $37.
You, you guided to another this year, and the margin coming out of last year was up almost 300 basis points into the fourth quarter. Where are these areas of efficiencies coming from? Do you still feel confident you could show margin expansion this year, next year and beyond?
Yeah. I mean, look at, we had talked a lot during last year on how the year would play out. It played out how we said it would. You know, we said, look at, we brought M&I into the year. We took it into our expense base. When we go to the end of the year, we'll have our dual staffing come down. We'll be able to single staff. We'll co-locate people. We are a in-office company, so you can boo me out of the stadium for that. You know, that's just kinda the way we run our company. We expect, all our clients serve their clients in physical locations, and I feel like we need to represent our client base in a manner. We got those benefits, and that was what you saw in Q4.
We spend a lot of money thinking about or we spend a lot of time thinking about and then money applied against how to just do the work better. I mean, we're deep in the details of how we do everything. In some ways, we have a manufacturing and engineering mindset on how the processes inside the company work. You know, I hold us accountable to do a better job every year. You know, that's, we still got opportunity inside the company to be better.
I'm gonna ask one more and then turn it to the audience if we have time for a couple of questions. Just on capital allocation, Frank, I mean, you guys have obviously made some very good acquisitions. Clover was one of them years ago. Even beyond that, you know, whether it's some of the more recent deals around integrated payments. Going forward, touch on your thoughts on allocating capital, whether it's M&A or buybacks or other sources, uses of capital, and then also free cash conversion. I think you talked about just under 85% free cash conversion embedded in your guide. Is that what we should expect now consistently more going forward?
Yeah. I hope I didn't say just under 85%, Bob.
Well, it was a dollar number, greater than, I should say. Yeah.
Just scared me for a minute. I, you know, I think a couple of things here. We like to return to our shareholders. It has been a tried and true formula, about deploying free cash flow to buying back shares.
I think we've been very balanced, I feel like, over the past few years, how we allocated our capital by investing in growthier assets also. Not really buying EBITDA, but actually buying an asset and thinking about how we take that asset, whether it's Ondot. Ondot's a beautiful example of something we're an investor in. We like to invest in smaller properties, get to know the smaller properties, get to know the founder. We like keeping founders. Invest in a property, come to understand the property and think about how you bring the property into the company. What comes with that is more cap. When you're really integrated, so we took Ondot, which was really a card control capability that was best in class.
We not only did that for our cardholder base, we embedded it in our mobile banking product that allowed us today to have almost 1,000 banks with a fully integrated mobile banking product that then allowed them to have higher activation rates on their card usage capabilities through it. We're helping our clients make more money. We're making more money. We are spending more cash on the integration beside the acquisition. You know, customer sat up, customer loyalty up, helping our clients grow their business. We like to buy those type of properties that I think we actually created a larger TAM than it had, and an opportunity beyond what we had in a banking experience that you probably only find in the largest institutions, and we spread it across 1,000.
You're gonna see us do things like that, and you're gonna see us buy back our stock.
Okay.
when appropriate. I think we've been balanced on it. I think it's working.
Yep.
well. We're not concerned about leaning in. You know, this might be a market where we're gonna lean in more on opportunity. We think we know how to buy things. We think. I wouldn't, and I wouldn't try to overread my lean in comment. It's just, world's got more opportunity, and I kinda think we got a good hand, and I think people think we're a good acquirer, and we treat them well, and we help them build their business fast when they get built in.
Good. All right, guys. Happy to take a question or two if you have.
I bored the hell out of them.
I think you answered everything they had.
Oh.
Just in terms of acquisitions, you know, Wade, you talked about leaning in, more opportunities out there. Any particular areas?
I mean, look , I think about e-com, I think about digital, I think about, you know, products that we can distribute through our large distribution and our large client base that can advance, you know, the journey we're on. If I had something, I wouldn't tell you. If I had it, I would give you a better hint.
Thanks. Any other questions, guys? Okay, why don't we leave it there then? Thank you very much, Frank.