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

All right. Good morning. Thanks, everybody, for joining. Super excited to have Fiserv here speak with us. Frank Bisignano, CEO, spending some time with us. Thank you for being here.

Happy to be here always.

We've had a lot of your peers and others give us different updates. And as I was preparing, Frank, I thought as a lead-up question, just this question of unified growth. I know you mentioned it a couple of times in the last couple of earnings calls, but just seeing some of your peers do some different things, yet you've been focused on this unified growth and you've delivered some premium growth relative to those peers because of it. I wanted you to go into that first, if you don't mind. Like what does that mean? And is that really what's driving the premium growth?

Yes. I think you got to go back. I'd like to go back to -- there's a reason it's 2 properties got put together. And although we declare integration over, merger done, not talking about synergies, the opportunities just abound. And maybe it makes sense to step back a second. And I think if you go back in time, which these things that appear minor and people sometimes can see our strategic pillars that create opportunity, at First Data, after we raised $3.5 billion in private offering that allowed us to delever the company, and we began feeling like we'd be able to invest a little more, we took the first $1 million we had and put it in a company called Finxact, which was just a thought. And that was really a statement about the bank ecosystems. And I had a deep belief that the company we had, which was highly FI-centric, although serving some of the finest merchants but through financial technology and fintech on its own, that if you could take that in the systems that I had known some well from sitting inside financial institutions, the debit and the core, as people call it, I call them deposit systems, loan systems, if you can put those together, you could have an unparalleled ecosystem to help both merchants and banks grow. And so it wasn't that the Fiserv-First Data merger was just that. It was a thought from a long time ago on both sides. Fiserv also always thought about what if we had a merchant business. And so then when we put the 2 together, we saw it was greater than we actually believed it was. I mean, I had a deep belief about it. When you think about the ability to be a great bank partner in merchant while you own the rest of their ecosystem. And yesterday, I was with 2 bank CEOs in different parts of the country, 1 in -- 1 from Pennsylvania, 1 from North Carolina. And they were both talking about how we helped them grow, right? So I think it is about being in business to help your clients grow and to take things like the debit networks we have, our ability to take our Optus platform, which is for credit and bring it through all those banks and our ecosystem. And then you take a product like Ondot, which both companies we're clients of, one, we were, at First Data, an investor in it. And we actually figured out if we owned it, we could actually do more for our financial institutions. And then you think about Finxact, which ultimately we came to own and one of our best clients in the world, Walmart buys One Finance and there we are being the provider of this technical infrastructure. So I think the combo unlocked way more value than maybe we thought on day 1. Maybe not in some way, but if you got up on an opening day and said you're going to do all these things, people might think, yes, that's interesting. So it's a ground game. It's an air game. It's just explosive opportunities. And our clients -- I mean, remember, there's a whole purpose of our existence is serving our clients and then ultimately getting the right return for our shareholders, our clients like the combo and our clients can consume a lot of the combo.

I mean look, hats off, it's come together really nicely, and I know it's not easy. So that's why I wanted to lead with that. But the combo that I like to think about the most, Frank, is the debit networks, right, with STAR and Accel. I know I've nagged you about this before and...

I nag myself about it.

But owning that debit network, right, which is what, the third largest?

Yes.

You have a big merchant portfolio and you've got a large bank portfolio, right? And you have Reg II coming that's going to give you a lot of opportunity to go after some business. So talk to us about that Reg II opportunity and what that might mean and the surround opportunities?

Yes. I think, I very early on kind of fell in love with at one of the assets, which was a debit network because you can't create debit networks. You just can't wake up in the morning and say, "I'm going to be a debit network." And it's a 2-sided network, it services our whole client base. It serves our merchants very well. It serves our issuers very well. And as new entrants come along, it serves them well too. And so there's always been this challenge around say, e-comm and whether you needed a third unaffiliated network. And obviously, Reg II changed that. And we just think it's leveling a playing field, creating more opportunity. The way we think about the debit network is had to use it our clients. I frequently show up in a client's office and say to them, "If you had all my assets, how would you use them because I'm happy to do that with you?" And then they kind of start thinking beyond the boundaries, like, well, how can that debit network help us grow? How does it exactly give us more? So I'm super excited. I know you always try to pin me down on how much it's worth. It's worth more than if we didn't have our Reg II. But we were growing that base, both on the issuer and on the merchant side pre Reg II. And I expect as we spend more time with our clients, it's going to get more application.

Okay, good. So let's get the macro question out the way so I don't get any more dirty looks. So on the consumer...

I thought that was me they were giving the dirty looks to.

I'm used to it. I'm good. On the -- you see the consumer side through the merchant business, of course, and then on the bank side as well with bank spending. What do you see?

Well, I think the consumer is still out there, right? If you come into most of our offices, you'll see a screen up there and it shows transactions per second. So my pattern recognition is pretty good welcome by that screen for a bunch of years and looking at what verticals are being spent in and what cities are being spent in and what's e-comm volume, what's mobile volume, what's order ahead volume. I think you talked -- you heard us talk about a slight slowdown in March. We have not seen any acceleration to that. I view it as, as expected. Obviously, you see varying reports coming out of varying retailers. I think one of the strategic benefits we have is the diversity of our portfolio. You saw in the worst times that durable set of clients we have performed, and you saw in a rising spending environment, how it performed. So I think the consumer is still spending. I think they're saving still that you saw before. We have the benefit of looking at the totality of our banking system, and we think of it, if it was 1 large bank, what has happened there, and savings are not depleted by any means and the consumer is out there. I know the second part is, hey, lots going on with banks. Are they spending? And I'd say the answer is yes. I do have this belief and having been inside these financial institutions, 2 of the finest in the world, in my mind, that tech spend is mandatory to grow. The 2 CEOs I was with yesterday were talking about how we're going to help them grow their business and implied in that is opportunity. I do think there's a little distraction going on right now, right? Having said inside these places, at this moment in time, it's not whether it's an on-off switch on tech spending. It's -- is that the most important meeting to go to right now? I think that it will clear itself out as in the next month, so to speak. Obviously, there is more regulatory oversight coming in at some level. So if you're in a bank, you're focused on, let me have my house in order and maybe I'm going to tell my CIO, come see me in 2 weeks. So I consider it a slight distraction going on.

Okay. So let's dig into the Fintech business, right? I know with all the turmoil and the distraction you just mentioned, we think of the traditional account processing business of Fiserv, your FinTech business as being pretty defensive. I know you and Bob and Julie get this question quite a bit. But what can you tell us about that defensibility? It held up very well during the global financial crisis. With all this deposit activity and some of the bank activity you know well, what does that mean for the business short term?

Well, I think first of all, we have clients who the FDIC shut. And then we have clients who took over the books. So I love our portfolio. And Finxact gets tremendous demand right now. And remember, that's our future, It's not anywhere in our numbers today, but we think about the structural growth of this business going forward, it will be a longer term. I mean, it's a privileged position we have in this account processing space. And it's actually an engine that allows you to do more with your clients. I mean, not to go back to the merchant business, but we've been hugely successful going into the smaller institutions that maybe didn't have relationships with us in Merchant [indiscernible]. I think it's a privileged position. We're maniacally focused on how to be better at that every day. There are fluctuations. I remember, probably in the third quarter, people were like, "Oh my God, their growth rate, what's going on?" It's a very steady, steady business that we're going to keep piling on to. It will have variations at time. But I think it's a privileged position. Our clients respect us a lot there. It gives us opportunity to do more. And it was -- it's a key element, it's a key element to drive growth across the company, too. Yes, there is -- which I think we have proven that we should be a bigger grower than we were in the past. And as always, we have aspirations of being a bigger grower in the future. But I think it also -- when you look at the growth rate of the company, right, we could debate what either company's growth rate was before call it, one mid-single digits, call the other here less than mid-single digits, whatever that might mean to your creativity. And today, 2 years of [ 11 ], with [ 8 to 9 ] on the last guide, it is about the power of all the assets in place. So I think that core, as people call it, I call it deposit and loan systems just because like I like to say, at Citi and JPMorgan's no body work [indiscernible] their core. It's the deposit and loan systems, and that was probably true in other institutions. It is so mission-critical that the ability to come in and do other things is just so darn valuable. So I mean, I think the structure of this company is what's allowed the growth rate to exceed. And then I'd say the execution of the team has been very, very high.

Agreed. Yes, look accounts grow and you attach more product against it and then see what works. But you've mentioned Finxact a couple of times here already, Frank. We think of Finxact as the clover for the Fintech business, right? Sort of the digital...

I'd say it's Clover, Esq.

Clover-Esq, sorry. So are you primarily serving fintechs with that business? Or is there a potential to serve traditional banks that as well? And tell us a little bit more why you chose that asset versus some of the other fintechs that are out there.

Well, I mean, I'll give a plug to the Sanchez family for a second. Sanchez Computing is not often that in this industry, a father found the company, his sons worked in the company. The company got sold and then they came back and did it again. So we spent a lot of time, Frank and myself and guys Guy Chiarello on the technical build of Finxact, and we were an early investor and then we were leading later rounds because we really, really believed we had something special. Its applicability is very, very wide. And our real issue is, right now, we have -- we just renewed 5 years with One Finance, and obviously, that's serving all of Walmart. So it's scalability, right, and it's live. We like to say we believe we have more live institutions than anybody else on a modern cloud-enabled platform. I think it will be a banking platform. There's no question. It will be a banking platform. And in many cases right now, it has financial institutions up and running on it. So we love our DNA platform. It does a great job for our clients, the combo of that plus Finxact, I think, gives us the best arsenal in the industry. We do like the fact that it can provide the capability to build a digital bank and it doesn't cause one of our clients to have to convert off of their current platform. We've stitched it together in a way we know how with a layer that causes it, we'd call it a sidecar. So I think it just strengthens our arsenal. I do think it's Clover, Esq in we love the technology. We like founders. We've been very fortunate doing whether you take Ondot, whether you take Clover, whether you take CardConnect, whether you take BluePay, to bring founders in, whether you take BentoBox, have them be part of the fabric of the company and stay with us for a long time.

Yes. No. I mean, [indiscernible] Frank Sanchez. I haven't heard that name in a while.

I hear it like every day when I dial his number.

No. It brings back memories, having covered that name back in the day, Sanchez Computer. So on the card issuing side, let's talk about that. We just heard from Marqeta just to be transparent. You've done well there. I know there's a big push on credit and the pipeline seems to be quite good. You've had some good conversions as well. So what are you doing differently there, Frank, that's driving some good production?

Well, I think platform for us, everything's platform strategy, whether it's Clover, whether it's Ondot, whether it's BentoBox, whether it's Finxact, it's platform strategy and then client-facing opportunity because if you build platforms but you're not building it in a manner that clients want to consume it, it's interesting but it's not going to be good for our shareholders. So we took what was probably an industrial strength capability, we modernized it, cloud-enabled it. We don't walk around and I like to say when people want to say, how are you doing on the cloud? I was like, well, 10 years ago, we were building Clover in the cloud. So we're pretty cloud-native joint. So I view that as technology. But I think with the modular nature of what we did with Optus, its capability has caused us to have target Desjardins. You can go down the list. So I think it's platform strategy, it's scalability, it's the surrounds that we bring, whether it be on loyalty or fraud. And so from the credit perspective, and as I said, talking to a client this week, they're like, "We're moving to Optus. That's the best system there is." So our small institutions now get the benefit. You hear us talk about the big wins, but serving the fabulous set of privileged cores we have and bringing credit and debit together for them has really been part of the growth strategy here.