Fidelity National Information Services, Inc. (FIS) Earnings Call Transcript & Summary

Great. Well, welcome back, everyone. And today, we're very lucky to have Bruce Lowthers joining us today, recently appointed President of FIS, formerly the President of Banking and Merchant Solutions. Bruce, thanks so much for being here today. Really appreciate it.

My pleasure, Ramsey. Thank you.

Maybe we'll hop in here. And can you talk about the genesis of the modern banking platform that you guys have constructed, it seems to be resonating in the marketplace, what customer pain points did you guys design it to solve? What can it do that sort of the old-fashioned core solutions can't?

Yes, that's a great question. And for us, started several years ago. We really were looking at how the market was continuing to evolve, talking to our banks. We saw that they had a challenge that they were faced. They had this old platforms that they had built around, and they needed something that was going to really enable them to kind of move forward in this new modern e-commerce world that's emerged. And so, for us, it really started with, let's find something that we can build that is on modern technology. And what we did is we built from the ground up. And it's a cloud-native application that really allows us to be flexible, gives the bank resiliency that it needs, stability that it needs and really allows it to be as adaptable as it needs to be as it moves forward. And so we're very excited about the reception. Obviously, we reported a number of really big wins for us on the platform. And we see that the platform has a real long runway here, and we're very excited about how it moves forward.

That's terrific. And how did those modern banking wins those new clients? How do those relationships evolve over time? I mean, we often think about this -- the industry you're in, we're in, they're sort of -- there can be a core solution, a lot of ancillary solutions that sort of surround it. What's the path there to kind of expanding the breadth of those relationships with cross-sell and things like that?

Yes. For us, in the financial services, we've -- obviously, a company that's been around over 50 years. And really what our focus has been on the last few years is this transformation, the product transformation of FIS, and how we prepare to move forward for the next 50 years. And so when we look at our client base in the core bank business in particular, really across the whole portfolio, we really look at the number of products that our clients have. And one of the key value propositions that we have is really the breadth of our portfolio. And so, for us, it really has been something that has enabled us to be very successful. And MBP is no different. So we started, as many people know, with our deposit platform within the core banking. And that's just the beginning of, as I said, a lot of product offerings that will be tailored to MBP as we move forward. And things like lending will come next in the product life cycle for MBP, which will again provide great cross-sell opportunities for us. And that's really what we've done exceptionally well over the last few years is really get in there and find the places where our customers are having challenges, providing a great product that integrates well with our solution stack like MBP.

And speaking of new products, I was intrigued on the last earnings call that you guys talked about launching RealNet, which I think you characterized as sort of like a network of network solution, maybe help us understand that product a little more, the use -- potential use cases growth opportunities?

Yes. RealNet's one that we're very excited about. We have been in the real-time payments vertical for quite a while, as many people know, going back over a decade and really providing central banks and others the opportunity to execute a real-time transaction. The concept really emerged from a little broader concept of each of these bespoke kind of real-time payment frameworks that are happening around the globe, there needed to be kind of a payments orchestration, if you will, of executing a transaction from one place to another, connecting all of these real-time networks. And that's really where the emergence of RGP RealNet came from is finding a way to connect all these various platforms. One of the great things about this is a-to-a transaction seemed to be one of the first business cases that are pushing forward, where you're taking a transaction that's originating here domestically in the U.S. and executing a transaction in India, for example. We, just internally, have a great case where we've leveraged RealNet, which is really around our FIS Cares. It's a charity that we have set up in our organization where our employees get to contribute to that charity for the benefit of other employees, other coworkers. And the pandemic has really provided an opportunity for FIS Cares to step in and help certainly our coworkers around the globe, but in particular, India is getting hit very hard as we speak today. And so we've really been able to deploy funds using RealNet in real-time to our employees in India, which has been really phenomenal. It's done a couple of key things, just to give you some metrics. It's really reduced the number -- or the cost of the FX transactions by close to 40%, and over 90% reduction in our transactional fees of moving those monies, and more importantly, has reduced the time from 3 to 5 days on settlement of those transactions to just a few hours. So really accelerating the movement of money. And we're very excited that this is just the beginning of things that will come about moving money globally.

Interesting. Okay. So it sounds like it opens up a lot of kind of new flows opportunities for you guys maybe that you couldn't have captured without it. That's quite interesting. Speaking of alternative or new flows, I wanted to ask about crypto. I'm trying to weave this theme into a lot of the panels in this conference. And you recently partnered with NYDIG to provide core banking clients with capability to buy, sell, hold Bitcoin in their accounts. Can you talk about that product a little bit, talk about the demand environment? Are folks asking you for this? Is this more of you preparing for the future? How would you characterize it?

Yes. I think for us, one of the things that we really anchored in around is new product. And that always starts for me. Going back to my start-up phase, it was always about going to our clients and asking what are the things that they're looking for, how can we help them solve the challenge they're facing or help them really move forward with an opportunity they're pursuing. So as we started to hear more around crypto, the NYDIG relationship seemed to make a lot of sense to us as a way to help solve some of the challenges our clients were facing of, how do they offer this to their clients as they started to hear from their clients more interest around crypto and Bitcoin, in particular, how do they provide that service for them? And so for us, having that being integrated into our bank offering, I think, will be a win for us. It's, again, kind of meeting a need that our clients are looking for, are curious about how far it goes, and what the real opportunity is, and we're very excited about the NYDIG partnership and think we're positioned very well to buy, sell, hold cryptocurrencies.

That's great. And maybe this is a good segue into some questions on your merchant segment, but would you ever contemplate offering crypto as -- on the acceptance side of the business in terms of enabling consumer payments of crypto across your footprint?

Yes. We we spend a lot of time looking at things kind of holistically across the segments. And so for us, crypto, Bitcoin or whatever your favorite coin is, those are just the next payment type for us. So as you know, we do well over 100 different payment types. It would just be another payment type for us. Within the merchant space, as you probably heard us reference in the Q1 call, we are positioned very well from an acquiring perspective, where we really are driving a lot of transactions for those exchanges. And so we feel that, as we look at crypto and the emergence of crypto, we'll be well positioned to handle it across the whole ecosystem in the marketplace.

Yes. I think it's an important detail that you guys sort of have the last mile. And regardless of the funding source, you have to travel that last mile. So whether it's crypto or another tender type, you're sort of, I think, decently positioned here, that's my view. Maybe...

Sorry, we think it's a great TAM expansion for us. So we see a lot of growth here, and we expect that it will continue to grow in the near future.

On to merchant, you shared the April volumes were up nicely. Can you give us an update summary on the kind of the trends you're seeing to date, maybe especially as it relates to travel volume?

Yes. I think what I would say, as we sit here today, we seem very much in line with the guidance that we gave for Q2 from a volume perspective. Obviously, I'm sure many people watched this morning as I did the Prime Minister talk about kind of opening back up the U.K. a little bit more. That was kind of what we were hoping was going to happen. So it's nice to see them starting to kind of emerge from their lockdown and that will be positive for us and kind of what we expected to happen. So I think, overall, we're trending just as we thought we would.

Okay. And this is a bigger, broader question, but do you see a more lasting impact from the pandemic on this part of your business in terms of the mix of payments, the channels of payments? I mean there's been so much change over the last year. What's going to stick around, and what's going to kind of fade away?

As I think about that question, what I would say is, certainly, the pandemic has been horrific in many ways, but it also has been a catalyst for a lot of positive things as well. And I think that's really what will stay with us. As we sit here in Florida, people kind of laugh of the pandemic reaction from Florida, where we've kind of been open and been able to go out to restaurants. But even as things start to emerge and the vaccine start to take hold, what you saw happen here is people started going back to concerts and events in person, social interaction, restaurants, those type things. And so what you're really starting to see that was created from the pandemic is momentum, momentum about how you interact and that is broad across the banking vertical and the payments vertical. You're seeing still, well I can go to a restaurant today, I'm now using the QR code to pull up the menu, which you weren't doing a year ago. You're able to order and execute a transaction with pickup and delivery to your home at a pace that you weren't able to do before. So it really has been a catalyst for change. And some of the things that became necessities out of the pandemic really are going to be niceties that we want to keep with us. We've really enjoyed them, and I think that's going to be the big takeaway from this is that it's created some momentum and created the idea of what's possible and that is always fun to see is people kind of reimagining the transactions and how they move forward.

Okay. You also unveiled in addition to RealNet on the call, the other new launch that I thought was quite interesting was the New Acquiring Platform that you're calling NAP. What is that exactly? And again, similarly, to some of the stuff on the banking side we already talked about, how does -- what does that do for your customers? What's the value proposition to the customer?

Yes. So NAP, the acronym is for New Acquiring Platforms, so very creative marketing there. But it's -- it really is the most modern acquiring platform at scale in the marketplace. And that's really what we talk about. So when you're looking for a platform that's truly global, that is a cloud-native application, that's really what NAP has become. And it's allowed us really to be more agile product rollout. You'll hear product roll out a lot in our discussions about how we really look at the segment or segments, whether it be capital markets, banking or merchant acquiring, our strength is coming out with these big platforms like in NAP, being able to integrate other new products to it very quickly and really have that modern experience, that developer experience where people can do things simply and probably feeds into one of the next kind of thoughts is, what's an example of that? We have Access Worldpay is another single in -- single API that allows you really access to our product suite within NAP and the surrounds around that NAP. So there's just a lot of great things that allow us to do with having a modern infrastructure, allowing us to integrate things quickly, being able to expand globally. You saw us expand in a couple of geographic regions. We'll continue to do that, and NAP is really the foundational application platform that allows us to do those things.

And so -- and you mentioned APIs, and you rolled out, I think, simple APIs, which seem to be ramping nicely. So it seems like there's some synergy between NAP and sort of -- API sort of architecture. How do you -- how has your sort of strategy with APIs sort of evolved over the years? And it's a pretty powerful tool, I think, in the hands of the industry. Can you talk about that solution a little bit what you see for API-driven payments in your business?

Yes. I think one of the fun things that have kind of evolved over the last 5, 6 years has really been developer experience, not necessarily user experience. I think that, that was kind of underway a little bit earlier, but what you really start to see emerge was kind of developer experience in the open API, and how they were going to do that. And we've really pivoted our organization dramatically around that. And so on the Banking Solutions side, you often hear us talk about Code Connect, which is really the largest catalog of APIs in the banking vertical. When you come into things that we're doing in the merchant acquiring space, we have that same thing, whether it be Worldpay Connect or as I just talked about with Access Worldpay, you've got really a great single open API infrastructure to provide access to the gateway of the Worldpay NAP platform. So we really have put a lot of energy around developer experience, create single-use, simple-to-deploy solutions. So we feel very good about the evolution and continued energy we have around the API structures.

That's great. It's interesting on payments. There was a moment where you're selling to the CFO, but really, you're also selling to the CTO because you need that tech stack in order to appeal to the developers rather than just being an economic decision. So it seems like you guys are -- yes.

Yes. I think it's one of the things that do not get enough attention just over the last 5 years of how dramatic that's changed the sales cycle of what we're doing. And things like Access Worldpay, things like our Code Connect really have become pivotal as we move forward, right? Because it's now -- the game is moving more and more towards speed of integration, speed of deployment and these open APIs have really allowed for kind of the reimagination of how you want to transact. And that's pretty cool for things like Open Banking and a lot of the new payment stuff that where payments is kind of moving into the fabric of applications.

I wanted to ask about your capital markets business. And double -- I think you mentioned double-digit bookings growth in this segment. What are the drivers of growth acceleration for capital markets just in a nutshell?

Yes. I think a couple of things. One, Martin Boyd, who leads that segment for us over the last couple of years, has just done a phenomenal job. He's really expanded the solution set there. So we have a nice broad solution set. He's pivoted to more of the SaaS model that we've had, really trying to drive that recurring revenue model with that business. And so I think he's really done a very nice job focusing on those 2 attributes.

Okay. And one of the themes in that segment over time has been the percentage of migrating over to SaaS-based models. How receptive are the clients to this? Is this something that there -- is this more of a push or a pull? And how is that migration kind of going?

Yes. I think this is much like the developer experience. I think this is something where the market has just moved. And what you saw years ago from a Banking Solutions side, you saw us really move into that recurring revenue SaaS-type model. I think capital markets is just a few years behind on that. But when you look at our client base from a capital markets perspective and our banking, there's a tremendous amount of overlay between those clients. So the clients are used to buying in that SaaS model. And so it's very much they're requesting that, and we're happy to change that construct and deliver it in that manner that they're used to buying. I think it's where the market is moving to is that SaaS model. And fortunately, for us, it's a place that we've been providing that type of service for a long time, and the market seems to be moving to where we are.

And can you get -- what's the ceiling in terms of the percentage that you can kind of move everybody to? Will it be most everybody or will you be running at kind of a [indiscernible] over time SaaS versus license fees that type of thing?

Yes. I think -- depending on where you're selling in the globe, keep in mind that the capital markets business is a global business for us, there's always going to be some license software sales that we do. But I think it will track more in line with kind of banking and how banking is moved over its history. And so I think it will line up very close to where banking is, ultimately.

Okay. And another nice result on the call was raising synergy expectations, again, our revenue synergy expectations specifically. Any specific maybe call outs from you in terms of where there's exciting synergy opportunities? Obviously, this is something you guys have spoken a lot about a lot in the past, you got a lot of opportunities. What's most exciting for you there?

Yes. There's a lot of things. As I look back to kind of when we initially framed out where we thought -- what we thought was going to happen or have the potential to happen, that's really kind of come together pretty well. I think what you're starting to see now is some of the things that we sold right as the pandemic was starting to unfold are now starting to really push transactions through. So as things started to reopen, you're starting to see just that volume of the sales that we made early on. So we feel very good about that. Premium Payback was one of the things we called out very early as a potential product that we saw had great opportunity within the merchant space that we had created in the Banking Solutions vertical years ago. And so that's really come to bear. I think we have got -- a lot of our large merchants are deploying or have recently deployed Premium Payback, so we're seeing nice wins there. I think our auth rates, we just were named by Strawhecker as having the best auth rates. So the energy that we've put in around really driving our auth rates up has really come to bear. And then again, we've really created a nice playbook on geo expansion. So being able to open these new markets was really a long, tedious process for Worldpay historically. We've kind of taken that FIS thought process and applied that to that process. And now we're expediting that and find ways to really open new markets quickly and establish that playbook. So overall, I think we feel very good about the revenue synergies and things are really kind of unfolding as good as we thought they would.

Maybe we can pick up on the Premium Payback opportunity, which is something that, I think, early on, you called out -- you guys called out as having some near-term benefits and longer term benefits -- low potential longer-term benefits. What's the pipeline look like there now? I mean, the big opportunity was cross-selling with the Worldpay merchant relationships. How would you characterize the pipeline? And also, if you could just share with us, what's the process look like there when you've already signed the customers? Is there a big implementation that needs to happen? Or is it something that can be rolled out relatively seamlessly?

Yes. So Premium Payback still has a great pipeline. As many people have heard, we've signed a lot of big deals in the first 18 months here, most recently deploying with CBS with over 8,000 storefronts. So a lot of positive wins. It's just a great product because it's a win for all involved. It's a win for the consumer. The consumer gets this unexpected benefit right at the point-of-sale and really has the opportunity to have access to a financial asset, their loyalty points, that previously were difficult for people to execute on. So it really creates a nice experience for the end consumer. The merchant likes it because that part of the transaction becomes interchange free, and so they're very excited about the cost savings there for executing the transaction. And the financial institution likes it as well because they get to liquidate those loyalty points in a favorable disposition. So it's really a win for the financial institution, the consumer and the merchant. It's just one of those great products where there's just a positive for all people in the ecosystem. So we see a lot of runway left for Premium Payback, and I think we're just getting started with the creativity and the thoughts around taking an asset that consumers had or businesses have, that is hard to getting access to, digitizing that and really bringing it to bear in an easy-to-use format like Premium Payback. I think you're going to see a lot more of that as we go forward.

And just to follow-up on the implementation there. When the customer signs, is there a road map that needs to be followed that's lengthy? Or is it pretty tight?

No. The great thing about Premium Payback is the implementation is very easy and quick. And so it doesn't take a lot of time. It's one that we have the ability to kind of drive. And now because having the merchant side of the equation allows us to do a lot of the prework on the endpoints within our ecosystem. So for our e-commerce clients and those type of things, we can pre-integrate, if you will, a lot of the work before even the sale occurs.

Okay. And I think we have time for one more here. How should we think about the long-term strategy with M&A, I guess, specifically, the appetite to consummate kind of larger, more transformative deals, but not necessarily limited to that. How would you characterize the strategy at this point?

Yes. I think as you heard probably Gary, when he talked, our strategy remains intact from an M&A perspective. I think we will react to where the market is and is what he talked about today. Things are very pricy in the marketplace. We view our stock as a little bit undervalued. So our thought today is more around stock buyback versus a large M&A transaction. But I think as you look longer term, M&A has always been a component of our strategy. It will remain a component of our strategy. And we're, I would say, kind of picky shoppers and really look for the right opportunity, and we'll continue to do that. And when it presents itself, then we'll be ready to act on it.

Let me sneak one last one and that's related here. Just not necessarily speaking about FIS, just more broadly speaking in terms of industry consolidation trends. I mean, it just seems like this lengthy multi-decade trend of consolidation in payments and/or fintech. Do you see that continuing?

I do think it will continue. What I would say, though, is the industry has a way of kind of reinventing itself, right? So today, there's just a lot of competition in the marketplace. And so you see a lot of the new companies coming in. I think the fintech is extremely hot as everybody knows. You're seeing a tremendous amount of investment. I think, through the first 4 months there was $22 billion invested already in the fintech vertical versus $43 billion in the whole year last year. So we're really seeing a lot of money pouring into the space. So there'll be the new folks coming up that will really make us all better and makes us excited about kind of where the market is going and being able to help our clients achieve their goals, and that's really what it's all about for us. So I feel very good about the market as a whole. I think it will remain vibrant and healthy, and I love the fact that there's lots of new entrants into the marketplace every day.

Great. Well, I think that's about all the time we have. Bruce, thanks so much for joining us today. Really appreciate it, and have a great day.

It's great to be here with you. Thank you.