We're going to get started on the next session. I am pleased to have a twofer here. We have Takis Georgakopoulos, Fiserv CEO, and Paul Todd, Fiserv CFO. Thank you both for joining us.
Thanks for having us.
Thank you.
All right. Takis, to open this up, you've been in the CEO seat for almost three months now. We've heard a lot from the team at Investor Day in May about the company strategy. You've since talked about bringing more urgency and focus to the execution. Could you talk about your top priorities, and are there any areas where you've made tweaks to what was previously communicated at that investor day?
Yeah. First of all, thank you for having us. I would say overall, in terms of the priorities of the company, as we communicated with the One Fiserv priority, these are pretty self-explanatory things. They're about improving customer service, focusing on clients, improving platform stability, capital allocation, Clover, et cetera. These are all obvious things that we need to continue working on, and that's why I focus so much on the continuity, post the transition, so that people continue to work on those things, and we continue to make progress for our customers.
If anything, there are two areas in which I'm focused more on, and I spent a lot of time on the Fiserv side in the past three months talking to a lot of our banking clients to just validate that what we are doing and what we're talking about is consistent with their priorities and what they want from us. The answer was that it was spot on. The clients acknowledge and appreciate the change that we made around our core strategy. They appreciate the investments that we made in the stability of the platforms. They appreciate the investments that we made, both in terms of the coverage team and customer service. They just want to make sure that that continues. Then in terms of changes, I would say two. The first one is around operating really as one company.
The way we were structured as MS and FS kind of underutilized portions of the business that touch both sides or sit in one side of the business, but primarily benefit the other. To give you an example, we have a great modern issuing platform. The clients of that platform are actually merchants and marketplace customers. We have a debit network. The value of that debit network is providing better auth rates and better fraud rates to merchants. We have StoneCastle that takes deposits from merchants and provides higher yield through banks that need those incremental deposits. The way we were structured, we're underutilizing or under-leveraging those synergies. I just wanted to make sure that the product organization operates as one, and then we configure our products by customer segment so that we can deliver what they're looking for. So that's change number one.
Change number two is a sense of urgency around the execution of our technology roadmap. We have a lot of priorities and a lot of things that we need to do. All of them reasonable things that make sense. We just can't do all of them at the same time, and therefore, it's important to prioritize the things that are on the critical path, both for us and for our clients.
Yeah. Okay, great. You answered a lot there. I think part of that, you mentioned operating as one company. I want to ask a question just from the top here, a question I am sure you have gotten a bunch, which is just the synergies between the two segments, whether there has been any change or reevaluation of the reasons for the two businesses to exist under one roof, how you think about the cross-pollination across the foundational capabilities like ledgers, pay-ins, payouts, the debit networks, et cetera?
Yeah. So we said at earnings that we are going to do a review of all aspects of the business, make sure that in everything that we do, we have a right to win, we have the strategy, we have the team, and we can compete against best-in-class competitors, and that work is already ongoing. If we can, that is great, and if we cannot, we find the right strategic answer for each component of the business. Right now, the things that we are doing are important and, again, obvious things that we have to do irrespective of what that eventual answer is going to look like, things like platform stability, et cetera.
From my perspective, I see a lot of growth opportunities for the company beyond just Clover that we have all talked about from the intersection of the FS capabilities and the MS capabilities, like you mentioned, the ledger. Every large platform client, every large marketplace that brings together millions of buyers and sellers needs a modern ledger. In our view, there is no better modern ledger than Finxact. So yes, you can sell it as a banking core, but there are low-hanging fruit, and there is a very large TAM out there for a core ledger for enterprise clients, especially when you link that with Commerce Hub, which is a modern gateway, and with Vision Next, which is a modern issuing platform.
That, together with our issuing business and our network business, I think are at the core of the synergies between the two sides of Fiserv. It is just very important to monetize those things, which historically, again, we have not done. The way we had set up the business, we were not set up for success around those.
Okay. I am going to come back to the strategic review in a minute, but let us talk through another hot topic, which has been the turnaround of Financial Solutions. You mentioned the change in strategy on the core side. A big part of that turnaround involved improving service levels, and the health of the relationship with the FI clients, and it sounds like you have spent a lot of work speaking to a lot of those clients. You have talked about a 70% reduction in client-facing incidents. How are you addressing some of those service issues, and what is the level of confidence that you have seen the worst of some of the attrition in that business?
These are long sale cycles, right? So a client that is leaving us today is a client that probably RFP'd a year ago, which means they were annoyed by us probably two or three years ago. Conversely, even though clients see and acknowledge the progress that we have made, they will want to see continuity of strategy and continuity of execution before we can declare victory. That said, what we see so far is that the actions that we have taken, which is platform stability, better coverage, and better service, are paying dividends. Year to date 2026 compared to 2025, both the number of clients that have left and the dollars associated with those clients are down quite significantly, and we see no reason why that trajectory will not continue.
At the same time, because we stopped talking to clients about cores, incidentally, no bank CEO wants to talk about core conversions.
Right.
Core conversions are like heart surgery. They take a very long time, and they disrupt everything that the bank is doing. Not just their DDA, but the way their ATMs work, and the way their branches work, and the way digital banking work, and everything else. The only reason why someone would want to convert is if they see the core as a constraint in the growth of the bank. Maybe it is an old core, maybe they want to move more to real-time payments or digital assets or Adyen, or if the core does not work because it has incidents all the time. We have addressed the second, and therefore now the conversations with banks around cores are few and far between and much more strategic.
That means we can spend much more time talking about how we can add value to the banks, whether it is through our issuing business or whether it is through Clover and Cash Flow Central, or whether it is through Adyen and AI. At the same time, because we freed up that capacity, we are able, for the first time in a couple of years, to be also much more proactive in prospecting clients. Winning banks like Flagstar is a sign that we are moving in the right direction. More work to do, but we feel good about the trajectory, even though we are not where we want to be.
Got it. Okay. I want to come back to the strategic review. You talked about expanding the portfolio review beyond lower growth non-core assets, some of which you have already talked about divesting. How is the aperture of that process expanding, and could you help maybe frame the opportunity for investors between business simplification and value unlock?
Yeah. We have divested two businesses. We will continue to look for standalone businesses that do not have either the growth profile or margin profile that we like that are standalone, and we will try to find strategic solutions for those. There are a number of such products that we have that we are looking at, so we will be doing more of those as we see fit, and obviously we find the right answer for those. I would say a big part of the work that we still need to do is product simplification. This company has a lot of products, typically the result of acquisitions done over a large number of years, which were not integrated. When I look at our product portfolio, I see two things. I see, number one, duplication.
Then number two, I see things that we call products with standalone technology stacks that really should be configuration of one thing. For example, when a client wants to do payments with us, a bank wants to do payment with us, we should not have a Zelle product and a wire product and an ACH product and an RTP product and a FedNow product. We should be able to have a payment product, and then you should be able to add each and every one of those payment methods as simple configurations. A big part of the work and a big part of Project Elevate is around simplifying the infrastructure that we have and reducing the number of platforms and the number of backends that we have. We have gone a long way on that in Merchant Solutions, and we will do the same thing in Financial Solutions.
On the merchant side, we had, for example, 14 different gateways for no real reason except history. We've decided on the end state architecture around a gateway called Commerce Hub and the end-to-end solution around that. We've shifted 80% or more of our tech resources on delivering Commerce Hub while putting the rest on maintenance with a view to eventually decommission those. That's the second part, which is big and quite significant in terms of our cost base, but also in terms of our ability to deliver a good solution for our clients. The third one is there are several things that we do today where we have monoline competitors that are really strong.
These are products that are important to our clients. We just need to have an objective assessment of do we have the right team? Do we have a competitive product? Do we have a plan to get us there if we don't today? For which of our customer segments can we effectively compete? We need to focus on those, and for the rest, say, "You know what? We probably can use our investment dollars in a different place," and then find different solutions for those areas. We know what these areas are, and we've been working on them.
As I've said in many of my conversations this morning, it's very hard to talk about them because the moment you even hint at any one of those, you create a death spiral because no client is going to buy a product that they know you are thinking about divesting. So we need to be very careful how we talk about them, but we will do the work.
Got it. Okay. Let's talk a little bit about Project Elevate. This is the program that you've referenced to transform Fiserv's operations, their tech stack. Coming with that is $500 million of identified savings and a 200 basis point contribution to margins over the next several years. You said the identification phase is complete, and now you're moving to prioritizing. So, talk about the visibility that you have now into those cost savings and how to think about the scope of some of those benefits.
Yeah. Very high, I would say, because a lot of those are obvious things that we need to do, and they come in two flavors. Flavor number one is overlapping projects, products, features, and capabilities, both in the U.S., but also internationally. The second one is the benefits that you get from the deployment of AI, in particular in technology and operations. So I would say we have very good line of sight on the $500 million. These are all things that we are already working on, irrespective of what we are going to end up doing with the remaining platforms. This is all work in progress, and we feel very good about that number.
Got it. Okay. That brings us to operating leverage. The company's targeting low to mid single-digit revenue growth. That makes margin leverage a delicate balancing act. You're committed to about 50 basis points of margin expansion annually, starting in 2027 on top of Elevate. How are you thinking about the continued investment and balancing investment in the business, with driving operating leverage?
Will, I'll take that. Takis may want to add, but as we said at Investor Day, if you look at our cost base being roughly 60% fixed, from a structural standpoint, it lends itself to natural operating leverage of roughly 50 basis points. That allows us to also continue to invest in the business as we move forward. We've made the significant investments, largely speaking, that we've needed to make to put ourselves on the right trajectory for the future. We'll continue to balance that on a go-forward basis to be able to both get the annual margin expansion that we talked about, the 50 basis points, as Takis just talked about. We're very comfortable of the 200 basis points of cumulative margin expansion that we see from Project Elevate.
I just remind, on Project Elevate, we do expect that to be more back-loaded as we expect 2029 benefit on the operating leverage on the margin side to be almost 2x the benefit that we see in 2027. We believe that we have the right structure to be able to deliver both the investments that we need and the margin deliverance.
Got it. All right. That takes us to the topic of investment. In the most recent quarter, you talked about an incremental $100 million of investments into technology infrastructure, primarily in Financial Solutions. Can you talk about what led to that decision? Where are the dollars going? How to think about potential upside risks from the investment environment that we're in. You think about cyber and risk and things of that nature.
Yeah. So this investment was predominantly on the fixed side of the business, and it was predominantly the result of the work that we've been doing around Project Glasswing and Frontier AI models. When you test that infrastructure against Frontier AI models, we did not find anything fundamentally different. Obviously, as you know, you run these models, you find some low-risk vulnerabilities that can be chained together to create a high-risk one and so on. But at the end of the day, we did not learn anything fundamentally new or any new things that we had to do that we did not know about. So our roadmap is exactly the same.
The main thing that changed, though, is when you think about the power of those models being available to everyone in the world over the next, I don't know, pick your favorite number, six or 12 months, the speed with which we need to remediate those things is just much faster, and that's why we decided that this is critical to do, critical to do as quickly as possible. Because of our position in the Financial Solutions ecosystem, that was something that we had to do. Again, it's work that we knew we had to do. We just need to do it faster than if these models hadn't existed.
Yeah. Paul, we were talking about this before we got up, but we've gotten a lot of questions around the upside risk potential in investment spending. It sounds like a lot of this is timing. How do you think about the way this $100 million carries into next year?
Yeah. It goes back to what I was saying before about the margin. We're going to manage the expense base to be able to absorb, obviously, this investment. As it relates to 2027, we will still be able to deliver the margin targets that we've outlined on an annual basis, the 50 basis points. There is a piece of Project Elevate that will come in in 2027.
Yeah.
We're managing that as we look at the total expense base.
Got it. Okay. This year has been a transition year. I think the cadence first half versus second half, the quarters have been a little tricky to get right, particularly on the non-recurring revenue side. As you look into the fourth quarter, the guidance calls for an acceleration to roughly mid-single digit adjusted revenue growth. A big part of that comes from lapping a lot of these non-recurring revenues in the prior year, the Clover pricing changes, as well as several other items. Can you talk about where in the segment should investors expect to see that acceleration? When we think about the dependency on implementation pipelines after several deals that were pushed out of the second half, after the update you guys had last quarter, what's the level of visibility into those go lives and then things occurring on schedule?
Yeah. A couple of things there. As you said on our last call, we did give guidance both for the third quarter and the fourth quarter. For the third quarter, we do still have some of the non-recurring comparative dynamics playing through. For the third quarter, we said we'd be down low single digits, down 1%-3% or down 2% at the midpoint of that. For the fourth quarter, growth of mid-single digits, which that's important for several things. First of all, that's the fundamental growth rate that we talked about at our Investor Day, the 4%-6% target that we had at Investor Day. To be able to deliver the fourth quarter in line with that future growth rate is important. As it relates to the segments and where we would see that in the fourth quarter.
Yeah.
It's broadly across all the segments that we would see a sequential improvement from the third quarter to the fourth quarter. So that's our expectation right now, as it relates to how that would sprinkle across the segments. The final piece to the question around the implementations is we feel very comfortable about where the implementations are. We have good line of sight into where those stand, so there's no change.
Yeah.
As it relates to our expectations on the implementation side.
I agree. I would add that the fourth quarter will be the first quarter in a while in which there will be minimal noise in the numbers. Therefore, what you guys see in terms of volume and what you see in terms of revenue growth will tie with each other. We have high level of confidence around the number that we talked about for the fourth quarter, which then we just need to take forward to 2027. You will see that without all of that noise from the elevated, non-recurring, et cetera, and the year-over-year comparisons, the fourth quarter will be the first clean quarter in a long time, and that will carry on to 2027 because there are not many large non-recurring that we did in 2026.
Understand.
It's going to be, hopefully, a much simpler story.
Right. Great. All right. Let's talk about agentOS. The Investor Day emphasized how difficult it is for financial institutions to deploy AI-enabled products in a regulatorily compliant way. Banks can't let agents into the core systems. There's a lot of regulatory focus around PII. Can you talk about how agentOS addresses some of those challenges and what some of the early client interest looks like?
Yeah. There is a lot of client interest because every bank wants to try out agents, wants to see how they work. By the way, they all have a bunch of manual processes that they know are ripe for automation. Our approach there is very conservative, which means always human in the loop, and always take a manual process that we know how to automate, and then do that gradual automation first, almost like a model with a human approving everything. Then as we get comfortable over time, allow more autonomous agents. The most interesting thing about agentOS is the infrastructure that you need to deliver that. That infrastructure is essentially an orchestration layer that looks at all of the functions that a bank has and links those to the core.
Which ties very nicely with where we want to take the FS business overall, which is what's important to us is to own the orchestration, the front end, and the ledger, which is the back end. Because between the two, you control the whole ecosystem, you control the data, and you are the critical infrastructure provider to the bank. Then the bank can choose our agents or their agents, our surrounds or someone else's surrounds. But between those two, you maintain the majority of the economics, and you create something that is pretty unique in the market. Also, to deliver on agentOS, you need to deliver on the interoperability of our products, which again, is another big priority that we have.
I see agentOS not just as a great standalone solution for clients to play with, get comfortable, regulators, by the way, to get comfortable, and over time, create real value with autonomous agents, but also as a way to show to the banks what the future of working with us is going to look like.
How do you think about monetization for some of these products?
Modernization?
Monetization.
Yeah. The monetization will come in a variety of different ways. The orchestration layer is a little bit like an app store. You can use whatever agent you want, but the one who orchestrates that whole ecosystem keeps a portion of the economics. The same way as on the merchant side, the company that controls the gateway captures a portion of the economics. The agents themselves, given that we have 3,500 banks, we understand the problem statements pretty well, and therefore, as we generate value and we generate automation and we eliminate manual processes and costs from the banks, we will keep a portion of that and we will price for value.
But over time, at the end of the day, the biggest value will come from helping banks modernize and becoming a critical component of their infrastructure, not just in the current world, but also in whatever the future world's going to look like.
Got it. All right. One product that has come up a lot as a growth driver on the Financial Solutions side is Cash Flow Central. You talked about reducing the implementation timelines a lot. Now you are looking for banks to drive adoption on their end. Also maybe supercharge that by tacking it onto the go-to-market with Clover. Where are you in that process, and what is your visibility to seeing results on the Cash Flow Central side?
Yeah. Cash Flow Central is a great product, and its main difference from competitors, because many other people have AP and AR, the main difference is it is embedded within the bank workflow. Which again, the same story as with Clover distribution through banks, most fintechs just do not know how to work with banks, and we are in this unique position that we grew up working with banks, and we actually know how to do that. They trust us. We know how to work with them. Banks are not, no offense to banks, not naturally good at selling, acquiring or selling invoicing or bill payments. The embedding that into their workflow, into their digital front end, training their front office, et cetera, is a critical component for the success of this product.
Cash Flow Central today has, I think, a couple of hundred banks and about 100,000 SMBs, if I remember correctly. But the real value is this is a component of the end-to-end SMB suite that we have, which is Clover, hardware, processing, software, and now invoicing and accounts payable. That end-to-end suite is pretty unique, and what we still need to do is take all of the learnings and best practices from Clover and make sure we embed those on the Cash Flow Central suite so that it really becomes a continuum. Clients can still pick and choose. Some may want Clover or may not want Clover, may want CFC or not, but we just need to make it very easy for them to buy the whole suite. But I think the progress with Cash Flow Central has been pretty good.
Nice. Okay. Let us go to Clover then. Clover has always been the cornerstone of that segment for many years now. Underlying growth, you have cited at around 13%, adjusting for several items. Reported growth was 2%, and so quite a bit of ways from the 15%-20% revenue target. I know some of that will narrow in the back half of the year, as you have already talked about. So talk about the achievability of those targets, what puts you at the high end versus the low end, and the path towards closing the gap between the reported results and the underlying numbers that you have been citing.
Yeah. As you commented, we are already there from a volume standpoint. If you look at where Clover volume growth is, we are already at the low side of that 10%-15% from a volume standpoint. And obviously, as we get further down, we will be able to continue, and you will see that even more so in the next two quarters as it relates to the progress on the volume side. On the revenue side, as you highlighted, we are already at the low side, really of that 15%-20%, if you separate out the noise. Once again, going back to my earlier comment around seeing things in the fourth quarter, you are going to see a much tighter correlation between volume growth and revenue growth on a reported basis
Right.
in the fourth quarter. As Tak has talked about at Investor Day, the things that get us higher in that range are the Clover Capital deployment, Clover Cash, which is just going to be coming online here in the next quarter. And then the further penetration of the other value add, whether it is Agent or a few other things that we are rolling out from a value added standpoint. Those are the things. There is obviously, as it relates to the migration of any of the back book, that also adds us up in that higher end of the range. But the key takeaway is, fundamentally, we are already performing at the low end of those ranges.
Now, the things that we are rolling out and doing on a go-forward basis moves us up to the middle or the higher ends of those ranges, depending on how successful we are there.
Yeah.
I would say, just to add to what Paul said, by fourth quarter, we will no longer need to have the conversation because the reported number and the normalized number that we are looking at will be the same, and it will be at the low end of those ranges.
As Clover grows, and it is already north of $3 billion, achieving those revenue growth targets would require more and more absolute dollars. That is why it is very important to continue working on Clover across all dimensions. The competitive differentiation of Clover remains the broad distribution that we have. I talked about banks, but it is also ISVs and ISOs and our direct sales force, as well as all of the work that we are doing to pivot Clover from a hardware-first sale, first to a software-first sale, and then eventually to a data-first sale. Because our sustainable competitive advantage as a company is that we do business with four million small businesses. Clover is already bigger than our biggest competitors. Fiserv overall is more than twice as big as Clover.
That information that we have and that knowledge that we have on SMBs means that we should be able to underwrite better, price better, help merchants grow because we know who their clients are, and we know what else they do and where else they shop. This is a very under-monetized asset that we have. In addition to that, we are able now to move Clover more up market compared to the past. Clover had two gaps when we were trying to move up market. One was we were missing some of the specialized software that some of our competitors have. Instead of building that and spending the next two years trying to do that, we decided to partner with best-in-class ISVs and surround those with the rest of Clover capabilities in a Clover-branded solution.
We have done that with high-end restaurants with Tabit, and we have done that with healthcare with Rectangle, and you should expect us to see more of that. The second constraint that we had is we could not support multi-location SMBs, which meant we were in this weird situation that when an SMB grew, we had to move them out of Clover and move them onto Commerce Hub because Clover could not support clients with big locations, which limited the GPV growth of Clover. That will be a thing of the past early next year, and that will also drive Clover growth. So we have a bunch of initiatives, very consistent with what we talked about Investor Day. We think those give us multiple paths to get to the 10, 15, and 15- 20.
Back book conversion, which we are trying in a variety of ways, and we are going to do more deliberately in 2027, will hopefully get us to the upper end of that range.
Got it. I am going to try to squeeze a few more in here. First on distribution, Fiserv has always had a very large, vast, wide, diversified distribution channel, whatever adjective you want to use to describe it. As competitors have looked to replicate that success, there is more competition in areas like the ISO channel, ISV channel, the bank channel. Have you seen any changes in the competitive dynamics for Clover, either on economics, partner exclusivity, or share of volume at your partners?
Yeah. It's obviously a highly competitive space with highly credible competitors, right? It's always been like that. On the ISO space, to take that part of your question first, we have not seen any fundamental change in the market share that we have with the ISOs that we work with. Keep in mind that we are embedded with those ISOs for decades, like the old First Data was embedded with ISOs for the past 50 years. A lot of the ISOs started from old Fiserv people. People used to come in and out. They would go from an ISO to Fiserv, out to an ISO. That's a very, very embedded relationship, and it is very strong, and we have seen no change.
Obviously, large ISOs will look for options. Some of our competitors are better in some of those subsegments, and it's natural that you're going to see them there, but we have not seen any change in our market share. Fundamentally, I think even though we love ISOs and we will continue to invest in that segment, we see more of our growth in the other segments, which, by the way, also have more attractive economics to us. ISVs, as I said, in the new embedded way, we should be able to do more and capture a higher value of the economics.
With banks, we work with 1,000 banks, actually more than 1,000, but only a minority of them have adopted the best practices that will lead to high adoption of Clover within their book, and we are working to expand that adoption to the rest of them. On the direct side, we have a lot of work to do to optimize how we prospect and how we price. We see a lot of upside in all of those things, and we don't see any of our competitors as blocking any of that growth.
Great. We'll just close it out here on capital allocation. You have a targeted leverage level of approximately 3x by year-end. How are you prioritizing deleveraging? Once at those levels, how do you think about the ongoing level of capital return, and the use of free cash flow?
Yeah. Will, nothing's changed from Investor Day when we talked about our first priority is to get our leverage level below 3x. We are targeting to be on that approach for the remaining part of this year and into next year. Our investment-grade rating is super important, not only to us but also to our Financial Solutions clients. So, we are committed to that 2.5x- 3x range and targeting down over the cycle period from 2027 to 2029. I would say, as we said at Investor Day, our highest priority of extra free cash flow beyond deleveraging is per share repurchase.
Right.
What we need is to get some time of our EBITDA to be able to be back in a growth mode to provide for some natural deleveraging in addition to the debt paydown, so we can get back to a much more meaningful share repurchase scenario, certainly in the back half of 2027 and beyond.
Yep.
If you look at our free cash flow compared to the market cap of the company, it is just a very attractive alternative. It is very hard to think of something that is more attractive than that. That said, once we get below 3x, we look at where interest rates are and where our stock is and what are the other options that we have. But stock buyback is just where we are right now would be a very high priority.
Understood. Well, I think that basically takes us to time. Takis, Paul, thank you for joining us. Really appreciate the conversation.
Thank you very much.
Thank you.
Thank you.