Fiserv, Inc. (FISV) Earnings Call Transcript & Summary

Welcome back, everybody. We are pleased and honored today to have Frank Bisignano, CEO of Fiserv here with us. Frank, so much -- thank you so much for joining us. It's a great pleasure.

My pleasure to be here.

Why don't we start where probably a lot of people are starting these days, which is sort of what are you seeing in the consumer spending environment, maybe also specific to what you're seeing in your business sort of most recently?

Yes. I think it's been consistent for us. I think, from our point of view, the consumer is still out there. They're spending. And remember, we have demonstrated a very durable business model. Obviously, we have verticals that are pure staples for our client base, and we have every vertical, really. But I think the consumer is strong. You can feel a tick down a hair, but I've kind of -- what I said in March, we saw it has kind of held at about the same level. I think there's different verticals that get affected differently by it. But by and large, all the data we see is the consumer has not really withdrawn across the board. But you do hear from -- you've heard some retailers come out and have it. And then you hear a large client of ours today talk about a better outlet, Walmart. So I think it's depending on what industry you're in.

And then maybe as a follow-on to that question, just in terms of the bank IT spending environment on the other -- not the merchant side of your business, necessarily. Any kind of longer-duration impacts or any impact at all that you're seeing from some of the turmoil we've seen in the banking industry? Or has that been something that's sort of in the rearview mirror, to some degree?

I don't think it's in -- here's what I would say. First of all, we have a good look at banks across the country. I spend a lot of time with our clients. I've spent time during that large turmoil period. I happen to be on the road visiting with CEOs. And it was very clear to me that it was a localized coastal problem even during that week. We obviously have a lot of data in a lot of institutions, so we have very good visibility. The health of banks are very strong across the country, and this was a very, very, very small minority issue. Having said that, we have a debt ceiling that we need to get through here. And obviously, if you're running a bank today, you are getting your mind around some more reporting to the regulators. And I'd say, those 2 items have a hair of distraction to people, not a pullback in spending, not a lack of demand. But I consider it like if you walked into your CEO's office, he's probably a little thinking about those 2 items, which may cause a hair of distraction. And that means that we haven't seen any pullback in orders. We haven't seen any slowdown in orders, but maybe there's a little distraction. And then the CIO can't get as much mind share for a few days here until we get -- until a little more of the summer, I think.

We're crossing our fingers on that one, the debt ceiling, that is.

Well, yes. I just think there's big issues sitting in bank CEO's office, and every project that's going on is still going on. But to take in on a new project, if it needs enterprise agreement, probably has a little stall to it.

In Merchant, I wanted to ask you a very kind of high elevation question before getting in this more detail on your specific business. The merchant processing ecosystem has become more complex over the last decade or so. There's all these platforms and software areas and things that have kind of emerged to sort of potentially sit between the merchant and the acquirer. Now you guys power a lot of those layers. You're the one powering a lot of their payments models. But I often get the question about whether the sort of the power and the value chain is shifting. How do you think about that?

Well, I think it's -- I think go back to where we probably started, or at least I started, 10 years ago. It was going to be a software support. It's going to be a software support. And yes, a strategic advantage is, if you have payments infrastructure, but you're going to have to -- in order to continue to grow at the rates, it's just not going to be on the secular nature of the business, but it also has to be on, as we like to talk about, ARPU and the ability to get more product into client. And that product is generally value-added services. So I think, my point of view is, own as much of the value chain as humanly possible, continue investing in software and services. I think, with that, you actually have a continually growing TAM, right? And if you have a continually growing TAM in a general secularly growing business, you should get a benefit of the multiplier effect.

Well, you guys have done a great job investing in the right places at the right time in order to keep the mix where it needs to be to drive growth. So we'll get into that here in a little bit. But Clover, which I think is very relevant to the comments you just made, Clover has been a success story. You set that $3.5 billion revenue target, I think, in 2025. Talk about the growth opportunities with Clover, the sort of streams of growth in Clover that give you confidence you can get to that target.

Yes. I'd say, we should talk about that. But I think the first 10 years of the Clover journey, as I said to you 10 years ago, we're going to deliver $3.5 billion of revenue through Clover in '25. What they did, when I just told you we're going to have a lot of Clover, is kind of laughed at me. So I think the past 10 years, taking something we paid $60 million for and having thousands of people engaged in its journey is the first piece that gives us high confidence and conviction. The second piece that gives us high confidence and conviction is just our client base and the amount of capabilities still within our client base. And that means our distribution partners, right? I mean, the early -- we used to have a saying, Clover all over. And especially in this town, I want to Clover all over. I thought it would -- many people sitting here going to -- and if they walk in a small business today, you see a lot more Clovers than you did a long time ago. And our distribution partners really, really, really think Clover is good for their business model to bring their business better. And then we built out our own direct channel. So I think, first of all, it's about distribution. Second of all, it's about continuing to verticalize the product. You see us have a deep passion towards restaurant, bringing BentoBox, which is a front door. And then international is a strong leg for us. The Deutsche Bank JV is just getting up and running. We have a very good franchise in the U.K. We have a great business in Latin America. So I think that's another leg. We believe the ISV channel will be another place. And we've invested heavily in getting Clover Connect to actually be a tool that ISVs can use. So this is a multipronged strategy, I think. And then we're going to continue to invest in software on the front end of it, and we have great expectations. And we're on that journey to how much more software penetration we have in there, which, obviously, there's no volume that goes against that software penetration. But software-as-a-service is a big deal to us. And it was always what Clover was about. I like saying we probably got Clover wrong in the beginning. I don't know too many start-up type entities that could say they got it right the whole way. This idea that it was going to -- which is where I started. It's going to be the iPhone for small business. Really, we came to understand that we need to really build canisters, build vertical, have good horizontal. We're going to continue to build horizontal, bring good employee management capability, but ultimately, your vertical will have expertise in there. And that's just another leg of this journey that we're building out that we anticipate is all part of the growth story. So I think we got confidence because of what we did in the past but more confidence on what we're going to do in the future.

Drilling down on the software story a bit with Clover, you also have an attach rate target. Do you -- right now, is that just about more -- is the bigger driver further penetrating existing Clover users with more -- with newer applications? Or is it basically that you're going to need to -- are you relying more on having to roll out more and more capabilities? Or do you sort of feel like now you've got a set of products to go to market with and just about further penetrating the book with it?

I think, either way, it's further penetrating the book and having new [indiscernible] have that attach rate at a level. One of the things on all of our products that -- throughout the whole company, we think it's an endless journey, right? It's going to be more technology, more software, more ability to help our clients serve their clients. Remember what we're really trying to do is we're trying to help our clients grow their business. And whether that's the largest retailers in the country, whether it's the best QSRs in the country, whether it's the pizzeria in Brooklyn, I love the pizzeria in Brooklyn or anything like that, it's sort of you go to a banking platform, how are we helping them digitally engage their clients better? And I think it's important to recognize that, that's the journey of the company to power our clients to be able to grow their business.

Very interesting. One separate note...

What's interesting mean when you say that? It was interesting to me. I don't know if that means interesting, interesting like wow?

I can assure you that was a good interesting. That's a good -- it's a yes. I'll qualify interesting. Was it a good interesting or bad interesting? I mean, look, at the end of the day, I think, to be candid with you, there were some skepticism about whether First Data/Fiserv was going to be able to change the underlying kind of cultural and sort of talent DNA you need to execute on the software strategy, and you have. And so I think that speaks volumes because, obviously, the revenue is there from software. I mean, maybe to pull on the thread a little bit, was there a change in organizational strategy in order to facilitate this? Or was the talent sort of latent in the organization all along?

Well, there's no 1 answer to any of these. There are no silver bullets. There's no, "Hey, we're going to go hire Skippy and the whole company is going to change." I do think, one, I'd love to say the #1 job in the company is software engineers, right? We're a tech company, and the #1 job is software engineers. We have a Chief Operating Officer, who's really head of financial services career, where he was the CIO for Morgan Stanley and JPMorgan. I like to believe I've overseen technology in the finest institutions, top league tables and statuses since '98. So we're engineers, we're technologists, we're operators. I think if you go deeper into the tech stack, you'll find those same type of attributes in our business lines. Many of the engineering things we think about are like trading systems and what you need to build for trading systems. And if you walk past a board, we've got all types of data, we're data-rich. Maybe yesterday, it was 5,300 transactions a second going through our merchant platform. So that would be like a trading for mentality. It's how do you not have latency? How do you build this in a way? And then you bring that, we invested in a lot of start-ups that we ended up buying. You look at Ondot, you look at you look at -- and by the way, 1,000 banks are up on that product in their mobile apps that allows them to compete at the highest level. That was not the initial capability of it. But not only can we acquire properties and keep founders and then bring that engineering step on to see the bigger, better goods. So what happened was you took a card capability that, yes, we brought into that business but then integrated into our mobile banking app. So in my -- and now we take 1,000 banks and install them all. They have a credit-debit integrated offering into mobile banking. Now you only have 1 instance of how somebody is going to access on their phone. That's a top 5 bank capability that we bring down. So I think that is about engineering with business leadership. My deep belief is that business leaders have to be technology-intelligent and understand how to lead technologists. And I think when I look at the turnover of that crowd at the senior level, it's very, very low because they're very, very deep. They're complete equity owners in the property, and we run a partnership mentality. So I do think -- I understand that in 2020, we guided to 7% to 9%. And like I like to say, much like many times on our journey here, we got laughed at a stadium, like what are you doing? Are you trying to get the stock up guiding at 7% to 9%? And we produced 11% 2 years in a row, so maybe it wasn't something that we were trying to do anything other than be conservative. And I think underlying that was a concern that you had 2 companies put together that you could be generous or you're not, say, one is a low single-digit grower, one is a mid-single-digit grower. You're going to do a merger, there's a pandemic, how is this going to happen? It's going to happen through software. It's going to happen through culture. It's going to happen by people working together. We have people in the office now. That's what we do. I think engineering is not a sport to be done not in a scrum, and the right agile development will get better output. So it's the cultural journey, I think, it never ends, right? It never ends. But I think people can see the output of their work in the client's office. And that's ultimately where ideas get generated from, in the client's office. We just don't go back and -- it's listening to clients, spending time with them, understanding their needs. So I feel like the TAM we operate in across this whole company is really unlimited, I mean, the amount of opportunities we have with all the banks we serve. I frequently say we serve every American household. We serve every American household. And you might wonder like where does that come from? Like how do you get to that? Well, Walmart, McDonald's, Dunkin' Donuts, Buffalo Wild Wings, the pizzeria in every town, 60% of their bill pay traffic coming to us, largest provider of Zelle, over 1 billion retail private label cards on Zelle. And we haven't yet capitalized on the opportunities where we will become much better at integrating all of this into offerings as we've all come back from the pandemic and can see the greater TAM opportunity. So I feel we have a hugely privileged position. I feel honored to do what we do. I think we power a lot of America's transactions, and I'm happy to stand behind the scenes of all the institutions that actually use our services. What do you think about that?