Am I on? There we go. Good afternoon, everyone. My name's David Koning. I'm a Senior Research Analyst at Baird, covering payments and services. Thrilled to have Fiserv with us again. I think it's probably been 25, 30 years in a row that we've had Fiserv, a great long-term growth story. We have CFO Paul Todd with us. Paul has a unique background. He's been at Global Payments, at TSYS, and now he's at Fiserv, so he's got the industry covered over time. I would maybe like to kick it off with just if you give us your impression of Fiserv. You've been around for six months now. What are the top attributes? How do you look at the company? Then we'll do Q&A.
Great. Well, thanks, Dave, for having us. We're glad to be here this morning. I'd say a couple of things. First, based on my background that you just mentioned, I knew Fiserv really well, being a competitor against them for many years and have always had a lot of respect for the company, the track record of performance, as well as the offerings. Since I've been there, I'd say a couple of things that have been some positive attributes that I don't think I fully appreciated. One, the strength of the product offering is stronger, whether it's Finxact on the financial solutions side or Clover, obviously, new Clover. The extent of that offering and all the things that Takis is doing has definitely been a positive attribute that I didn't fully appreciate before I got there.
The scale that exists, we talked about this at our Investor Day, the scale that exists, the breadth of the offerings, it's just unmatched. I've got a much better appreciation for that now, being inside the company, than I did before, the data that we have is more extensive. The things that we're going to do with the data we talked about at Investor Day is additive. The final thing I would say is the people. The management team that has assembled here is a nice mix of both new people like myself and also tenured Fiserv leaders, we're all aligned with One Fiserv. We're aligned with getting the company to the constant compounder profile that we've talked about. Those would be the things I'd highlight the most over the last six months.
Yeah. No, that's great. We'll talk about a couple of high-level things. You just talked about data. We'll just start talking about that, and then eventually, we'll talk about the merchant segment and financial. You have a significant amount of bank data, merchant data. How do you use all this in coming years? Could you start charging even for data hits through AI or however you charge for that?
As I said, it was one of the underappreciated attributes of the company. I think the data that we have is really unmatched by being able to have, if you want to call it, both sides of the transaction from just a transactional standpoint, but then all of the account data and all from both businesses. For the first time, we're beginning to meld that data from both sides, and we talked, once again, at Investor Day about having the leverageability of the data between financial solutions and merchant and some of the enhanced use cases that exist, whether that's on the merchant side around auth rates or additional intelligence around fraud that gives us unique differentiators of being able to use that data just on how we provide offerings for our customers on using that. In the future, I do think there's some really accretive use cases.
Takis talked a little bit about it on the merchant side of how to let data be used to help the businesses grow their businesses faster based on some of the unique data insight that we have. Yes, I do see some potential revenue lifts in the future around data that may not have existed before or certainly didn't exist to the extent that they do now, and AI allows us to be able to leverage that data position in a more unique way.
Okay. What about AI just in general? Is there any risk of AI replicating some of your products? Maybe how can you use AI to become more profitable?
We definitely see AI as an enabler to our business. Obviously, our business is focused on infrastructure, financial technology infrastructure, whether that's payment processing, clearing and settlement, authorization, just regulatory core processing. That's what we do. If you think about how AI can be a benefit to companies that have deep embedded processes with financial institutions that have very high regulatory barriers, that have a high data component where AI can be additive. We did spend some time at Investor Day talking about several use cases of AI, whether it's AgentOS on the financial solutions side or on the merchant side around our data agent allowing at the merchant level. On the customer-facing side, we have AI leverageability there.
On the back office side, we're seeing good improvements, and we even shared some of the data around whether it's on the development side, some of the efficiencies we're seeing there, or on our contact center, some of the efficiencies that we're leveraging AI. It's benefiting both the front house and the back house. We definitely see it as a positive for our business going forward.
Yeah. Maybe if we turn a little to the just high-level financials. Historically, you have a 40-year period, almost every year double-digit EPS growth. The last couple of years, you ran into some one-offs. Maybe review that a little bit and now your midterm guidance, which is back to 10% + EPS growth.
Yeah. It was one of the hallmarks of the company of the 40 years of track record there, clearly, one of the key things we're focused on is restoring the company back to that constant compounding profile. Everything we're doingFrom a financial standpoint is getting us back to that consistent, predictable double-digit earnings growth. We obviously have had the last couple of years, which has had several different dynamics to it. One of the key things that we laid out at Investor Day was the components around mid-single-digit revenue growth, operating leverage that allows for annual margin expansion. Obviously, additional margin expansion through Project Elevate, high free cash flow conversion, then allocating capital in the most efficient way to allow for that consistent double-digit earnings growth on a go-forward basis.
We feel very good about getting, even though this is a transition year here this year, but we feel very good about from 2027 and beyond allowing that financial algorithm to play through. As we said at the start of the effort that we're on, the economic engine of this company is still there. That long track record of growing a mid-single-digit revenue growth. What we're talking about doing in the future is very consistent with what's been done in the past.
Yeah. If we talk even a little bit about more of the near term, the first half had some tough comps, low single-digit declines. Second half, you actually expect to get above the normalized growth range, 6%-8% in the second half. Maybe talk a little bit about that and then why it gets back to four to six longer term.
Yeah. Dave, we said at the beginning of the year that this was going to be a transition year for us. We also said that we would expect a different first half to a different back half just due to some of the comparative dynamics between last year and this year. That's largely the dynamic at play. This back half, one of the reasons we gave the building blocks for the back half was to provide additive insight into what we expect in the back half of the year. The biggest key thing I'd point out is we do have some contracted revenue that's coming on in the back half of this year. That puts us slightly above the normalized 4%-6% guidance range that we talked about for the cycle guide.
If you took that out, you get back to the more normalized 4%-6% growth that we would expect. As we also said at Investor Day, that 4%-6% is based on the volume growth that we see in the business.
Even with these last two years where there's been more noise on the revenue side, the underlying volumes across the business have been very stable, and we expect that stability to continue based on all the things that we're doing, and that's the single biggest driver that underpins the future revenue growth expectations for the company.
Yeah. By volumes, you mean deposit accounts, merchant volumes, enterprise vol, like just kind of everything?
That's exactly right. Accounts on file as it relates to our issuing business, core accounts and Finxact accounts in banking, our transaction volumes in the debit side.
On the merchant side, our GPV, particularly on the SMB side, as well as our transactions, our enterprise transactions on the enterprise side. Those underlying volumes are the drivers for our revenue growth. We've seen consistency, and we're expecting, assuming a stable macro, we're expecting consistency on those underlying volume drivers.
Yeah. Last high-level question, when would you expect to buy back stock again? I know you're around 3 times leverage. I think even to the end of this year, you'll be around that. When will you feel comfortable getting back to more normalized buybacks?
Yeah, it's something we want to get back to a more normalized buyback picture. We talked about capital allocation being critical of getting more share repurchase in the mix. But we are spending this year to kind of get back to below 3x leverage.
That puts us in a position to be able to do more meaningful for buybacks. Once we get past this year, let that leverage get below three times and get to a more normalized environment next year, and get the leverage down, then you would see us be back to a much more normalized, more meaningful buyback paradigm.
Yeah.
Yeah.
Sounds good.
Yeah.
All right. If we move to merchant, you expect 6%-8% growth in merchant, which we think of as above the kind of 5% retail growth type, I guess retail growth in the U.S. and probably around the world. How much of the above-market growth is just you gaining volume share? How much is just yield from pricing and software, et cetera?
Dave, I think it'd be helpful to think about it in a couple of ways. One, if you just look at our segments, so our SMB segment, of which Clover is the key driver of growth, we're expecting high single-digit growth for SMB overall, and that's driven by Clover primarily. From a Clover standpoint, going back to the volume being the key driver, we're expecting 10%-15% volume growth in Clover, and that's been at the 10% level, relatively consistent with what's been done over the past. That doesn't assume any kind of meaningful back book conversion at the lower side of the 10. As you move up between 10-15, it would have more meaningful back-book conversion. That's where the Clover growth starts, is with the volume growth.
Then we expect about a 5 percentage point uplift between revenue growth of Clover and volume growth. 15%-20% is the range that we're expecting for Clover from a revenue standpoint. That's driving. That's the main driver of that SMB growing at the high single-digit rate. If you move over to the next biggest segment, it's enterprise.
We expect roughly mid-single-digit growth for our Enterprise segment, which we would also expect Enterprise transactions to grow at roughly that mid-single digit. That would be the anchor for that mid-single-digit growth. Obviously, we're very excited about Commerce Hub and the things that Takis talked about at Investor Day to help fuel Enterprise and some of the things that we're doing there. Then we expect processing to be roughly flat.
Yeah.
Those are the growth dynamics at play for the 6%-8%. We do expect a stable macro across that. If we put those drivers together, we believe that 6%-8% is the right growth range for our merchant solutions.
That makes sense. With Clover, you basically said 10%-15% volume, but 15%-20% revenue, that 5% uplift. Maybe explain a little why you have that revenue uplift from Clover. Is it pricing? Is it new product sales, some mix shift somewhere? What drives that?
Yeah. That delta is primarily driven by our value-added solutions our VAS. Think of Clover Capital as being both software and Clover Capital being the two biggest drivers of the VAS and that uplift that we see. It would be a relatively flat yield perspective as it relates to Clover. I think, one of the things we're excited about, as we continue to add from a VAS standpoint, we just rolled out a new product called Clover Savings, which is allowing our merchants now to have much better utilization of their cash. If you think of Clover Capital as helping our merchants from a capital standpoint, we're now providing an alternative to allow them to get more yield from their capital that actually sits in their business.
We just most recently talked about an agent now to be able to allow merchants to have an agent that is additive as well from a revenue standpoint. Those are the additional services that we wrap around or the ecosystem revenue that exists inside of Clover, is what allows us to have a revenue growth rate that exceeds the volume growth rate.
Yeah. That's great. Now why does Clover win? Clover's been winning in the market really for five, six years, and before that it was winning. It was just too small for people to really know about, but it's been winning consistently.
Yeah. Dave, I mentioned it at the start, it's an asset that I didn't even fully appreciate being in the industry.
For a long time around the strength of the offering. If you think about, and this is in our One Fiserv Plan, pillar two, is making Clover the preeminent small business operating system. That's exactly why it wins, is it provides a complete suite of offerings for small businesses to grow their business. Everything we're doing as it relates to not only what exists in the environment today, but as I mentioned, Clover Savings as being an additive, everything we do is about helping small businesses grow. We've made offerings unique to the verticals that we're in.
We've been primarily retail and restaurant specific in the past, but you've seen us now move into other verticals, healthcare being an example where we've partnered to make a very bespoke, vertically specific offering inside of Clover to allow to make sure that as we move into different verticals, that we're keeping that superiority of operating system, and that's why it wins. We obviously have very diversified distribution. We have the largest distribution network of anybody in the industry, and that helps us from a sales standpoint. At the end of the day, it's the product and the technology that wins.
If we look at non-Clover SMB, so you talked about Clover is about a third of the segment. Non-Clover SMB is probably in that same ballpark, enterprise 30%, and the processing is smaller, if we just sub-segment it all.
Yep.
Non-Clover SMB, how fast should that grow over time? I know it depends on, you said 10%-15% volume growth in Clover, 10% with no back book conversion, 15% with back book. How would you range the non-Clover SMB, some of those same parameters?
Yeah. The way I think about the non-Clover SMB is it should likely grow at around GDP.
Yeah.
Right? That's the starting point from a growth expectation. What changes that, going to your question around what are the dynamics
to the degree we're more successful of converting non-Clover SMB to Clover, that becomes a headwind to that growth, which obviously is a tailwind to Clover growth because it moves us up from that 10 on the Clover side to the degree we're moving non-Clover SMB to Clover SMB. It becomes additive there. That's the way to think about the growth as the non-Clover SMB book looks.
Yeah. GDP growth, maybe a little less if you're moving more to Clover.
That's right.
Yeah.
Obviously our focus is to move more customers from non-Clover to Clover.
We have between a 15%-30% revenue uplift when a customer moves from non-Clover to Clover because of the attach, because of all the solution sets that we offer on the Clover side. As we've said, we're being very mindful about the approach of moving customers from non-Clover to Clover. We want to make sure that we're meeting customers where they are. There's always going to be a solution set of customers that want to just stay with where they are. We have good NPS scores on customers that are non-Clover, but we do think over time, obviously, we think it's additive for customers to be inside the Clover ecosystem.
Yeah. I was going to ask about that. Why would anybody stay on a Clover system? I guess just to not have to deal with the conversion would probably be one of the few reasons, but is there anything else why somebody just stays non-Clover?
Yeah, I think it'd be more just they're happy with what they have. They have maybe a simpler solution set that they need. If they're happy on their hardware, they don't need any of the attach or the added solutions that Clover offers, then you could see customers saying, "I don't need to move over." Over time, just even think about Clover Savings as an example. Why not use a network that allows you to make higher returns on your capital sitting in your operating account as a small business?
Yeah.
As we continue to expand the Clover ecosystem, we think the breadth of offering widens the use cases of the non-Clover SMBs being able to move into Clover.
Yeah. That makes sense.
Yep.
The distribution network's second to none. It's incredible at driving the growth for many, many years. Are they actively selling? Clearly, they're actively selling Clover. Do they also sell non-Clover, and how does that mix work?
We do have some partners that sell non-Clover. Given the breadth of distribution that we have, we do have some non-Clover sales that go on, but that's not the big focus area.
The big focus for us, particularly with our partners is selling Clover.
Yeah.
Our customers get the most use cases and the most breadth of service from Clover, and that's what we push from a selling standpoint.
Yeah.
Yeah.
One last question on merchant enterprise, close to a third of the segment, 25%, 30%, maybe. You said it grows with transactions, mid-single digits or GDP growth. How often do those big merchants switch? Maybe of the top 500 or so, have you said what % share you think you have?
Yeah. We haven't called out necessarily shares. We do have a significant share.
We have very deep penetration in grocery, in petroleum-
Yeah
In quick service. We have a very big franchise on enterprise. Probably another one I probably should've highlighted at the start of something I didn't fully appreciate on the enterprise side. There isn't a lot of change that occurs there. These are deep integrations at the enterprise level, and so these are longstanding customer relationships built over a long period of time. There isn't a lot of movement there. Probably two things. One, obviously, it's very hard to move at the enterprise level just because of all the different technology involved. I would say as well, a lot of those enterprise customers have multiple solutions.
That's probably another factor. The one thing I would highlight, and we spent some time at this at Investor Day on the enterprise side, is Commerce Hub for us is a differentiator. This is going to be a meaningful differentiator for us going forward. If you think about our enterprise business historically, we've been heavily focused on in-present, card-present solution sets. With Commerce Hub, that's going to allow us to capture more omni-channel enterprise customers. I think the key thing there is enterprise customers, particularly on that side, are looking for the most intelligent transaction processing. When I say that, I mean better authorization rates, lower fraud, it is a very highly procured process that enterprise customers go through. Having Commerce Hub, a global omni-channel gateway, is a very unique attribute of the company.
You take this great installed base that we have, and you layer on top of it this omni-channel gateway. I think it's a real differentiator for us going forward.
Yeah. Thanks for that. We move to the financial segment, about half of revenue. In the banking part of that, you have about 3,000 or so core clients. About a year ago, you talked about moving platforms, really investing in five from 16, I believe.
Yep.
Lately, you've talked about, "Hey, we're not going to force any conversions." Maybe talk a little bit about that segment.
Yeah. Obviously we talked a good bit about this. The first thing I would say is we listen to our customers.
The decision around the conversion from 16 to 5 was several years in the making, and one of the things that we heard loud and clear was our customers want to move on their timing. We want to make sure that we match our customers' needs and desires, and so there are no forced conversions.
We're going to operate the platforms as long as our customers want to operate on those platforms. That's one of the key tenets of when we rolled out One Fiserv, is that we're going to operate the company with a client-first mindset. One of the things we heard loud and clear is the clients don't want forced conversions. I would say that one of the things that we're doing most recently is looking at that whole conversion spectrum in a different light, particularly in light of AI, where conversions, because of the modularity with which we're looking at our financial solutions technology set, it's not going to require the same heavy lift for a customer to make those conversions as it did in the past. We are also offering many paths for a bank to upgrade their technology stack.
You won't necessarily have to do a conversion to be able to get some of the benefits that you had to do in the past. At Investor Day, Dhivya was walking through the various paths banks can choose to make sure that they're getting the technology they want on their timeframe that meets their needs, and that we're providing that in a very ubiquitous sort of way to make sure that we're matching their needs with our solution set.
Yeah. In issuing, you work with many of the very large credit issuers to keep track of credit transactions, et cetera, and you are very familiar with that business at TSYS.
Yeah, this business I know. Yep.
Yeah. How sticky are these relationships? How hard is it for them to leave? Maybe talk a little about TSYS's Pismo product that's getting a lot of air time. People are a little nervous about that.
Sure. Yeah. This is a business, Dave, that's got very sticky relationships. The integrations that you make inside of a bank, it's obviously a critical infrastructure that a bank has that they want to make sure that the provider that they're using is one that they trust and that you have an offering set that meets their needs. It's a very sticky relationship, very high recurring revenue, long contracts. We talked about how long of contracts we have in place here at Fiserv. This is also an area that our offering set here is more robust than I thought it was coming in, both the solution set, the surrounds, the international capability. It's one of the strongest pieces of the Fiserv franchise.
As it relates to Pismo directly, I don't think right now we haven't seen any meaningful impact to our issuing business here in the U.S. I think it's had a more Latin America on the issuing processing side, maybe in the past, but there wouldn't be anything unique I'd call out as it relates to our issuing business. We're in a good position. All the things we talked about at Investor Day around the transformation that we're doing to the platforms, whether it's Optis or VisionPLUS-
of making sure that the platforms are robust and have the feature functionality that the issuers need and we're on a good track there. We have good business. The issuing business is very strong here.
Yeah. In digital, your key products, debit processing, bill pay, Zelle, the P2P payments, the debit network business, you do a lot of different things. Bill pay has declined a little bit, but outside of that, it seems like these are very steady units. Why was revenue down this year? I think there were some pricing negotiations, maybe talk about that, and then does this return back to more normal growth?
Yeah. Just specifically on the revenue side, yeah, it's just more of the non-recurring comparative dynamics that I would call out there. There's just noise related to the revenue this year that is distinct from the volume growth that exists underneath that, and I've talked about that on the last couple of calls.
Nothing more than I would add there. I would say on a go-forward basis, we do expect the business to return back to a more normalized growth. That wouldn't be something I would incrementally call out as we look at next year, and that the normal correlation you would see of revenue growth there versus volume growth would be much more intact on a go-forward basis. There isn't anything else I'd call out.
Yeah. Okay. We have a couple minutes left. Go a little off script here. If you think about where are the business units that you feel the best that you could gain share. Clover, I would say is probably the most obvious one to everybody. Where when you step in and say, "I've seen all the payments. I've worked in all these companies, I've seen the payments ecosystem. Here's where Fiserv can take share.
Yeah. I would start with Clover-
Just because it clearly wins share.
If you look at the FSBI, and you look at the growth rate there, and the track record over a period of time of gaining shares, nothing unique to the period now of gaining share. That's clearly one of the strength areas. I would probably next move to international issuing as being an area where I think that we're positioned to gain share or certainly grow the business in a more meaningful way, the opportunity set there. I think as you, this goes back to Clover, but just merchant in general internationally is a greenfield area of growth that we're seeing additive growth there, particularly in Brazil, now in Canada.
We have Japan coming online, which I'm very excited about just because that market has always been one that has great growth if you can crack into it. With the partner that we have, I think we have a very good entree into meaningful growth there. Those would be the areas that I'd highlight.
That's really interesting. Almost never do investors ask about international being viewed as a relative advantage. When I think about fintech, international is very hard to break into greenfield. If you're small and try to break into another market, your scale lends itself to being a huge advantage.
Right.
Is that?
That's right.
Yeah.
That's one of the key benefits of international, and we want to make sure that when we enter markets that you have the right partner.
You're in, but the scale becomes a distinct advantage on international growth. That's one thing that I think positions us in a unique way to be successful there.
Yeah. Well, that's great to hear. Well, that's about all the time we have, so please join me in thanking Fiserv and Paul Todd.
Great. Thank you.
We'll be hosting a short breakout session in the Astor Room 1A.
Great.
Okay.
Thank you.