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

Good afternoon, everyone. I'm Harshita Rawat, Bernstein's senior analyst covering payments processors and IT services, and I'm delighted to be joined today by Mike Lyons, Fiserv's CEO, at Bernstein's 41st Annual Strategic Decisions Conference. Mike, thank you so much for joining us.

And thank you for having us.

So Mike, it's been almost 100 days since you arrived at Fiserv as CEO elect at the time and only a few weeks since you took over as CEO. So as you reflect on the past few months and weeks, tell us about what you've learned and what has surprised you?

Well, it's been a busy first 100 days for me and obviously, a disappointing first 100 days for our shares. And as you would expect, I spent a lot of time, I'm sure, with some of the people in the room and with all our shareholders, and it's -- the clear message to us is that as a company, we could have done a better job of communicating on some of the underlying growth drivers of our businesses. And you have my full commitment going forward to do just that. If you pull away from that and think more broadly, it's been exciting and an energizing start. Met with a little over 1,000 of our clients across the world, lots of our employees across the U.S. sites and spent some time in Europe and Asia, and really have been going through and systematically re-underwriting all of our businesses in operational areas and studying all aspects of the company. It's been great to do it alongside some veterans of First Data and Fiserv like Guy Chiarello, who ran technology for a long time and now is our Vice Chairman. And then some of our new talent that we brought in, including Takis Georgakopoulos, who joined us from JPMorgan as now our COO and was Head of Payments at JPMorgan. So I knew the company well coming in, having worked with it for a long time as both a client and a banker. I know it a lot better now, not totally, but with the added perspective, just more energized about all of the different opportunities we have, growth opportunities we have. You start with the business that has deep, long-standing relationships with customers of all sizes where we are providing mission-critical software into them, creating this highly recurring revenue stream and putting us in a really privileged position to continue to add valuable products and services to them. The construct of the company continues to stand out, having merchants and financial institutions under the same roof and watching those increasingly -- those businesses increasingly interconnected has been a great part of the company to see. The market share positions we have are just incredible. You go through each one of these businesses, #1 merchant acquirer, #1 point of sale in the SMB space, #1 bank core processor, #1 online banking services, #1 mobile banking services, #1 -- you just go on and on. So we've got these privileged market share positions but still a ton of room to run in both our TAMs. The opportunity internationally is incredible. The distribution network that we have is incredible in part with the banks, but also with new sources like ADP. The quality and the quantity of data that we produce that we're just at the nascent stages of learning how to monetize and take advantage of by providing value back to our clients. The talent of the employees, 13,000 software engineers. It's an incredible number, all creating further and further software. So it's been great to see all that. I think I just finish by saying that I think part that I'm most excited about so far is in every client meeting that I go into, I'm struck when you leave it, whether it's on the FI side or the Merchant side, very small, about just how many different opportunities we have to grow with them and add value to them in this position that we sit in. It's a unique position. That's just in our current TAMs. And then we can talk about it if you want, our ability to expand TAM without significant incremental cost is there. And there's giant areas in and around our space that we haven't touched yet, deeper in the health care and government verticals, the B2B space, we're small in there, stablecoins. You can go on and on and on, some of these big areas we haven't touched yet. So great company. I'm honored to have the opportunity to lead it, got a lot of work to do, but obviously, been a busy start in lots of different ways.

That's a lot for 100 days. So Mike, as you look out into the future, is there anything you would like to change about Fiserv's strategy or guidance framework?

No. The strategy remains unchanged. I've said that from the very beginning. It's a great strategy. It's time tested, and we're just starting to scratch the surface of what we can do. Sort of the way I describe it in the most basic terms is win clients, grow with those clients by providing value-added products and services, understanding what they're trying to accomplish. And then going into that and meeting them where they are. Leverage scaled operating platforms, which are all across the company that we see, which generate substantial free cash flow. Then we take the free cash flow, reinvest it in products and services to sell back into those clients or to expand TAM and start the whole process over. So the virtuous cycle. So our time hasn't been spent rethinking strategy. The focus is all about execution and tweaking things here and there, but it's about execution on both the financial and operational side. And obviously, from a financial perspective, we've been focused on executing against all of the commitments we made, including 15% to 17% EPS growth this year and hitting the $3.5 billion Clover target, I'm sure, we'll talk about. And we're also focused on continuing to stay disciplined with our use of excess capital with the goal of maximizing growth and free cash flow per share over a long period of time. So from an operational perspective, I think the focus has really been if there's a tweak or an emphasis, it's really doubling down on a client-first mindset. And what does that mean for us? That means we have incredible products and services. We have this privileged position that we sit with our customers because of the mission-critical software but it's really about getting in, understanding their strategies, making sure that we collaborate internally across both businesses to come up and identify value-added solutions, deliver that promptly and stay operationally resilient. If we do that -- and this is where we're spending the bulk of our time. If we do that, we have the ability to just keep growing average revenue per client, sort of an ARPU type measure, for a very sustained period of time. They need our help either facilitating sales in the merchant side or competing in a very competitive bank environment on the technology side. So very focused on execution. The strategy is good. It's worked for a long time.

Great. So Mike, let's talk about Clover.

Three questions.

So volume growth has been an important topic amongst investors. In the first quarter, Clover volumes decelerated to 8%. And you've highlighted that this number is more like low double digit, normalized for gateway leap year, Easter or Canada, et cetera. Any changes to call out in terms of same-store sales or new customer acquisition or churn within the first quarter or the second quarter Clover numbers?

I'll start by saying Clover is a great asset. It's got a long growth runway, and it's going to be an important part of the Fiserv story for a very long time. As you know, we've spent the last few weeks trying to highlight some of the puts and takes around Clover volume growth in Q1 and expected in Q2. And I think just listening to you, you asked the question, I think you've answered and captured the key takeaways of what we said. So there's nothing new to add to that. If you take away the gateway conversion, recent Clover volume growth has been in the low double digits, as you said, and that's our expectation for Q2. So to be clear on these points, we haven't -- we don't see -- if you take away the gateway, we don't see a deceleration in Clover volume growth. And if you look at all of the other KPIs for Clover across the whole spectrum. We don't see anything that's changed in any way that would indicate anything negative. We haven't seen any changes in the competitive environment. We have great competitors. They were great competitors before, they are today, no changes there. And we don't see any signs of market saturation. In fact, we're seeing the opposite where our distribution partners, banks, ISVs, ISOs are asking for more Clover and it's our goal to continue. And they want more value added on the Clover platform, more Clover and it's our job to deliver that to them. So not -- I think you captured it all and no new news there. Last thing I mentioned is -- or I'd mentioned two things. I'd add two things. The volume growth we had in the first quarter was in line with our expectations to get to the $3.5 billion target. And then we have identified both to drive growth this year and then for many years to come, really the five different areas. Horizontal integration, so that's the -- think about ADP, CashFlow Central and some other stuff that we'll continue to put on the platform. Vertical integration, we launched Clover Hospitality a couple of weeks ago at a big conference, and we'll continue to build out functionality for different verticals. The third is the international expansion. Fourth is operational excellence from a -- if you put every KPI on a 1 to 10 scale, there's room, we can do better in everything we do around Clover. It's not that we're doing bad in every area, but we're not tapped out in any area where -- what I've spent my life doing, sort of running core operations of businesses, there's opportunity for us to do everything everywhere. And then the fifth is continue to grow the distribution channels. And we talk about banks and ISO partners over time, but ISVs are increasingly important. And ADP is a totally new aspect of a distribution partner on that front. So a lot of opportunities for us to go execute against on the Clover front.

So Mike, let's unpack that a little bit more. So a key question amongst investors is what is the right growth algorithm for Clover in terms of volumes and also revenue growth. Can you unpack that not only for this year but also for next year and beyond for us?

Yes. I think the best way -- the way I'd explain this answer is we approach Clover, the same way we approach all of our other businesses across Fiserv is this client-first mindset mentality, and that means meeting our clients where their needs are. So our clients, the SMBs in this case, are telling us they want a highly integrated, highly intuitive suite of products, hardware, software and cash management solutions to help them run their businesses better. And that's exactly what we're trying to build with Clover. It's an operating system. It is not a point-of-sale system driving payments volume that's measured -- driving payments processing that's only measured by volume. So I think -- so I guess what I'd say accordingly along those lines is the revenue mix of Clover will be determined by how the customers engage with Clover, which will be dependent upon how good of a platform we put out there for them. So there is no -- we don't believe there's an algorithm, nor should there be an algorithm that we have any control over. The client -- we want our clients to engage with the platform in any way that they want specific to their geography, industry or other area that meets their needs. And if we do that and continue to build a platform of VAS that's highly valuable to our customers, the gap that you're talking about between revenue growth and volume growth should continue to grow. And it's not -- I don't think it's a bad thing. So it's -- our job is to build an operating system, and that's what our goal is with Clover.

And you talked about the big opportunity for Clover. So let's talk about the addressable market for Clover a little bit more. So there is a perception that the addressable market may be more limited in the U.S. because of this possibly being kind of restricted to restaurants and retail and the competition that exist there. And you have noted that Clover as having mid-single-digit penetration within its addressable market. So tell us more about this, what are the different areas where you see Clover having potential opportunity and how is that a little bit different from some perceptions?

Yes. There's obviously been a lot written on TAM. By the way, the work you did last week was very good I thought. So you should be proud of that. For us, when we look at the TAM, we start with the Fiserv Small Business Index, and the Fiserv Small Business Index is built off U.S. census data. So we feel good about that. And when you look at the U.S. holistically, this is the stats you have, whether it be volume or merchants, our market share is less than 10%, less on volume, a little bit more in merchants, but it's both less than 10%. And if you look internationally, it's pretty close to 0, and we're just getting started there. If you go into some of our longer-standing verticals, our market share is higher, which we're very, very proud of. And with -- and we see that with, as you mentioned, smaller restaurants, we want to be specific around restaurants and retail, dipping into the double-digit market share numbers. But in running our businesses there, we're not feeling like there's limited growth opportunity in terms of either new customers coming on to platform or importantly, penetrating the existing customers with more services, and we see opportunity. I talked about Clover Hospitality, we see opportunity to expand TAM more. We got to do some work and invest and execute there, but areas like professional services and health care are both what we think are very attractive going forward to build additional solutions into that. And it's very common in the feedback we get from our banks as to where they want to engage with us in the verticals. So we'll do that over time. And I think we've got a pretty good track record, at least as I've watched Fiserv and Clover over time. When they focus on a vertical, market share goes up. So a good opportunity there. But overall, on U.S. market saturation, we're not feeling it. We have -- go back to the strategy, win new clients and grow with them by providing value-added services. And that's not just big banks and big merchants, it's SMBs, too.

And I also want to ask about the international opportunity for Clover where I think there's probably less attention on, and there should be more. You've had...

We've gotten plenty.

I meant of...

Yes, of course.

You've had big country launches in Brazil, Australia, Mexico, you have CCV for distribution in Europe. You have a lot of bank partnerships. To make the international opportunity for Clover more real for us, what countries would move the needle the most and why?

Yes. As I just said, our market share internationally is pretty close to 0. We added 5 countries. We're in 8, so we're in 13 of them now, and I'll come back to that. I think in your work, you defined -- I can't do all the math, but you defined the TAM for our relevant markets, that's something like $3 trillion of processing volume. So obviously, the opportunity is huge, and we're excited about it. We're taking a very deliberate approach at this point, and we're going into markets where Fiserv's been for a long period of time, they're established relationships, we have offices, we have people, the brand is known and the like. And we're going into those markets with the same approach that we've gone into -- distribution approach we've gone into the U.S. market, so both direct sales forces and partnerships with premier financial institutions in those markets. And you can look for the -- as you go through the 13 markets, the type of partners we have, you got Lloyd's and NatWest in the U.K. You got Deutsche Bank in Germany. AIB in Ireland. UniCredit now in Austria. Unicaja in Spain. These are premier financial institutions, and we'll continue that path as we go into more and more of the new markets. So the opportunity is exciting. I think as you go -- if you look across the new markets. We just went into Brazil, obviously stands out, not one, because of the size of the market. The size of the SMB base in -- Brazil has a very significant SMB base. And then we have 3 really high-quality distribution partners. Caixa, which is a state affiliated banking organization with close to 30,000 outlets. You think about the biggest U.S. bank has 4,000 or 5,000 branches. So the size here is massive. Sicredi, another great banking partner, 2,800 branches. And then Software Express, which we had done in an acquisition. So Brazil is super attractive to us. We launched -- officially launched in Q4. It has been a long-awaited launch we keep getting asked questions, but we officially launched and announced in Q4. And then to the deliberate point and being thoughtful about what we're doing, we spent the first quarter training our partners. You don't just turn on -- you don't go to a new country and just turn on Clover. So training our partners and then we first started selling in April. So we're excited about the partnerships across all of these markets and the opportunity across all these markets, but I think Brazil stands out on top. And then I'd add that there are -- we're not done. There are other large markets that we either have international markets that we either have a modest position in that we're trying -- actively trying to get a bigger position largely through additional partnerships, or new markets that we would go into in the same course of the other 2. So I think there's a long runway here. Of course, we've got to execute, and we're just starting to scratch the surface of this.

Lots of things scaling this year. And one of the other things that you talked about earlier is the ADP partnership. So can you expand more on that? And what does this do for Clover's distribution and also the referral relationship you have with them on the payroll business as well?

Yes. It goes -- I go back to the client-first mindset with Clover and you're building an operating system, small businesses, with at least what they tell us, and I think what they tell other providers in the market, they don't want to go to 20 different sources for the ability to run their business. They want a highly integrated suite of products and services. They want, payment processing, certainly, they want tax. They want payroll, they want employee management. They want inventory management, maybe they want website on it. Whatever it is, can you put that in a suite of services for them. So you have a couple of alternatives when you think about that and you're building out that operating platform. We could go find and buy a payroll processor or you could go partner with the #1 payroll processor in the world, and put them on your platform, which seems -- obviously, it was a good -- we thought that was the right decision. And in the midst of that, they're obviously out looking for small businesses every day, and those small businesses need payment processing and a point-of-sale terminal with an operating system on it potentially. And so they now become a distribution partner for us. We become a distribution partner for them. In May, we went on -- their software, their RUN software, got integrated into Clover, we'll go the opposite way there. And then we'll work closely with them on mutual referrals back and forth. So I think it's one example of meeting the client where the client needs to go. It's one example of making sure we fit what our clients are telling us they want from us, which is a robust set of products and services. And we get the added benefit of incremental distribution. There are other types of transactions we're working on to fill out that suite of services for the operating platform and some of the other areas I talked to you about. And hopefully, we'll be able to tell you about those over the coming months.

Fantastic. So Mike, let's talk about your Merchant business, excluding Clover, so the rest of the Merchant business. Tell us about the SMB book ex Clover, how is that doing? And maybe also frame the back book opportunity here. Roughly 10% of Clover's merchants come from the back book. What drives that number higher and how?

Sure. So SMB non-Clover, roughly $4 billion in revenues and growing. So that's that book. With respect to back book conversion, it's a question that always comes up. If a SMB wants Clover and Clover is the right platform. We don't deny them Clover. We get them Clover and obviously, that's serving your customer and having a client-first mindset. In both the U.S. and outside the U.S., we are and continue to test broader back book strategies to see what would work or not work going in bigger scale from non-Clover to Clover. But we haven't tried anything, any type of forced broad-based conversion yet, but it's clear to us, and -- it's clear to us and I assume it's clear to you all that going forward, Clover is the primary platform for the SMB customer base given the functionality it provides the customers and obviously, the opportunity for long-term revenue growth it provides for us. So I think it's fair to assume as we go into 2026, you'll see more directed back book strategy, but we want to test and learn first before we go and do that and make sure we understand, again, from a customer perspective, what works. And that's the same thing that we've said over the years, 2026.

I also want to ask about enterprise and Carat. How is Fiserv positioned here compared to peers in your view?

Yes. Go back for a second. Carat is really synonymous for the whole enterprise system, global enterprise system for large merchants. We're now running that through Commerce Hub on the front end, unified, single API-based analytics-driven orchestration layer. And then we have a consolidated back end, real-time information-based back end. And a large merchant can integrate once and get access to all of the great value-added services that we offer through the enterprise business. So if you think about it, it's just Clover for big enterprises. And once you're in there, you get global reach, you get -- we're driving improved authorization approvals with AI. We do low-cost routing. We're driving modern types of payments with buy now, pay later, with pay by bank, whatever -- wallets, whatever you want to engage with us and take advantage of the data that I talked about earlier, payouts and probably one of the most exciting areas for us going forward is the embedded finance platform. So Commerce Hub on the front end is an area where we're putting -- it's an exciting investment area for us, and you'll continue to hear about it and focus on it. It will really be the epicenter of innovation for us going forward, whether that's stablecoin, whether that's agenetic commerce. And we're taking -- competitively, we need to get Commerce Hub global. We're taking it global. We'll be live in Latin America by the end of the year. We've made it available to our banking partners on the -- for their enterprise clients. And over time, we look at opportunities to have Clover go through Commerce Hub so that large merchants have an opportunity to benefit from the Clover platform. So I think we have a very competitive platform. There's some gaps. We're continuing to invest in those gaps to fill them, but the amount of surrounds and the value-added solutions that we could give to our clients, it's as robust as anyone. I was with a large retailer earlier this week that basically -- you go back over time, you study the relationship. It's basically every single year, they do 5 more products with us. And it's not -- we don't go in and say, "Open up the code, here is 5 products to sell you." It's working with them. This is this client-first mindset. Understand what they're trying to do, go back into our tool kit, what we have, either build it with 13,000 software engineers or enable it with all the technology we have and deliver it back to them. And if they grow off of it, they keep coming back for more. This is the strategy of the company. So we left this meeting, it was all about modern -- the shift in commerce payments going forward. And we're there in the forefront of that conversation as competing with anyone and we have years and years of background to do it, and we left this meeting with at least 5 more products and services that we could go back to them on, and we got to go deliver that promptly.

So Mike, we spent so much time discussing the Merchant business. But Fiserv has an equally enviable assets in its Financial Solutions segment, which is a greater contributor to earnings. Let's talk about that segment, which I guess holds a special place for you given your background from PNC. You spent the last 2 decades working inside a bank, tell us about the challenges banks face today in terms of technology and how Fiserv is positioned to win in this market.

Yes. I worked at a bank, but we did a lot of payments. And I think it goes back to that construct. $4 billion payments business, we were big users of the Clover platform and use Fiserv for all kinds of things on the payment side of the business. So as we go through it, just this recurring theme of the unique construct of the company with FI and merchant under the same roof, just it keeps coming up as an opportunity. So the FI business, I agree with you, it's a great business. We're providing mission-critical software, highly recurring revenues, attractive operating margins, and these are broad-based, deep relationships that -- where we operate with the banks. So it's this concept of the ARPU theory of just more revenue per client if we stay operationally excellent and add value products and services. 10,000 banks we work with globally. 5,000 in the U.S. Over 3,000 in the U.S., we run their core operating platform, which is sort of in bank [indiscernible] talk that's sort of the mitochondria of the bank sale. So we have their core, and that puts us in a very privileged position to deliver a whole bunch of value-added services in and around the core. And rough numbers, the company has always said, you sell $1 of core, and you generate $3 of surround-type revenue. And that includes obviously the significant partnerships we have with merchants -- with banks on the merchant side. So that part, the business at its core is incredibly good. And now we face a world where banks are competing in a wildly competitive space that is increasingly dominated by technology. And if you don't believe me, pull up last week's JPMorgan Investor Day and you got to add up various numbers, but it looks like they're going to spend $13 billion this year on technology, right? And this is -- there's now 9,000 other depository institutions in the U.S., credit unions and banks that have to compete against that. And I was trying to explain it the other day, it's not like high school sports, where there's a 5A division and a 1A division, you're out on the street and you got to compete against Chase. So how do these banks and credit unions do it? Our belief is that we can be of help to them. And we've got scaled operating platforms. We've got a ton of technology and they don't all have to use it the same way, but it's our job to be their partner in this increasingly competitive world. So we think there's a tremendous growth rate there for a long period of time, leveraging this client-first mindset and just delivering products, more and more products into them across the platform so they can compete. So as we go through the business in terms of priorities in the business, and we can touch on any one of these you want, we are leveraging our -- I don't know if I mentioned earlier, but #1 card issuing platform. So there's core of the bank and there's core of the card platforms. We're #1 in that. It's a global business. We've got great momentum in it. So we're continuing to invest in our platforms there, and we think there's great opportunity there. We're consolidating and enhancing some of our U.S. cores. We have cores from many acquisitions over many years. We're putting those together in a better package, higher quality enhancements, in a sense, modernizing those for our clients. And then on the modern core piece, we're leveraging Finxact in a way that we haven't before, both inside the U.S. and outside the U.S. And I think we haven't had Finxact and a platform we're investing on the card issuing side called Vision Next. You go internationally with Finxact and Vision Next, and we've got a real suite of products on the international side, and it's been a while since we've been competitive on the international side. U.S., obviously, it's the cores plus Optus. The other thing -- so it's card issuing, U.S. core consolidation, Finxact, leveraging Finxact, in a lot of different ways. Embedded finance, I talked about it earlier. If you take our card issuing side plus Finxact plus the acquisition, which we just did, which is an embedded finance orchestration layer with Payfare, we think we have a competitive product suite as anyone in that space. And the headline deals there for us have been DoorDash and Walmart's One finance -- the banking company. But there are so many other opportunities on that front. So we're formalizing our efforts around that and really honing in on it. And then we continue to onboard clients to XD, our new digital platform. And then finally, we continue to do development work on CashFlow Central, which we think is a bit of a killer app for the SMB cash flow management space. So great business, lots going on, and we think we're in a privileged position to continue to deepen our relationships with these institutions.

So Mike, let's talk more about CashFlow Central. One of the very unique products that you're bringing to the market, bringing together capabilities from a lot of different Fiserv products. Tell us about why this is so differentiated as an offering? And what are you seeing in terms of FI uptake here?

Yes. It's -- we're super excited on the CashFlow Central piece. We're building it in conjunction with Melio, which is a fantastic software company. It's a great partnership. For those of you who don't know CashFlow Central, it's essentially an AR/AP cash management tool for small businesses. This has been elusive in the financial services, banking sector for a long time. We struggled with it at my past institutions. The general mode for banks has been to port downmarket a cash management solution that was created for middle market businesses or sometimes even large corporate businesses, and it gets down to the small business like putting a 400-horsepower motor on a canoe. The small business is too much there. They don't use it effectively and it costs a lot of money. So what we're building, it goes back to this client-first mindset is we're building what the SMBs are telling us they want to build, which is a highly competitive cash management tool that we'll have embedded in Clover and we'll have embedded in our SMB suite of products for our banking clients. The -- we just went live with our first client, Washington Federal in April. There are -- we have 50 -- mid-50s of other banks signed up to go and then we have hundreds of banks, maybe thousands, hopefully, but at least hundreds of banks watching to see how this develops. So we think it's going to be a significant tool for us and our -- really our first significant play into the B2B space, which we've identified as an attractive under-penetrated for us TAM in the FI business.

And I also want to follow up on your comments on your issuer processing business. As you highlighted, you have the industry-leading credit card issuer processing business. I know you talked about sizable wins, Target, Verizon, which are going to be scaling this year. How should we think about the growth prospects of this business?

Yes. So our card issuing business today, it's of significant size, very attractive margins. We have -- to your point, we have great share, 25 of the 50 largest U.S. credit card issuers, 80% of all the private label card issuers, and then we go global to 6 of the top 8 card issuers in India, 2 of the top 5 in the U.K. And you sort of work your way around the world, 1.7 billion credit card accounts on file, which is sort of a stunning number. As you mentioned, good wins with Target that's now onboarded, Verizon comes later this year. Desjardins is another win that comes into next year, and there's lots of -- the competitive landscape is -- for this business is wide open and lots of good conversations going on there. So we feel like we have good momentum in the business. And that momentum is really coming on the heels of significant investment. So our platform in the U.S. is called Optus. We've put a couple of hundred -- we're in the process of putting a couple of hundred million dollars into Optus to modernize it, add all kinds of features that are some of the most significant and competitive credit card companies in the world are asking for. So great progress in Optus. And then I mentioned earlier, we're in the -- we're close to rolling out Vision Next, which would be our international cloud platform, which is -- international card platform, which is cloud-based, totally modernized. And that and Finxact bring this modern combination that, again, I don't think it's matched in the market, and we have a great opportunity to go forward with that. We talked about on the first quarter call, Vanquis Bank being our first client to sign up on Vision Next. And so we think it's a -- we like the space. We understand the space. We're actually an end-to-end provider. So not just the transaction processing behind the scenes, but we're a major print player, and we are a significant player in the design and customization of the cards, which you may say, "Well, you do plastics." But if you've ever watched and experienced a credit card person study a card and how the card is designed, it's a much more sophisticated process and we're a leading player in that. We even do Robinhood's actual gold card, which is, I think, 10-karat gold or something. So it's a big end-to-end great market share. It would be a business that we roll with for a very long period of time.

And you're also expanding, as you said earlier, into new verticals, government, health care -- opportunities?

Yes. A little bit of that on the card side, but more broadly, I talked about some of the TAMs that we either partly in or not in at all, B2B was one we just talked about, we're partly in. I'd put government and health care would be in that same sort of bucket, we're in them, but there's so much more we can do. We have a -- on the government side, we have a long-standing reputation of excellence in delivering some very significant and meaningful programs on behalf of the U.S. government during periods of -- times of stress, including COVID and other times, and we'll continue to leverage that and execute on that business. And we think we have a lot of solutions that bring efficiency to certain areas of the payments world. I think we can do a better job, state and local governments. And so our expansion in government, we're growing government, but it's more sales and distribution and focus than it is any type of major investments or technology. On the health care side, really the only place we've played historically is we're a leading player in HSA cards. So back to the credit issuing business, I should have mentioned it earlier, but in the health care space, we're sort of a dominant player in the HSA card space. So health care more broadly is an enormous TAM that we want to figure it out and our partners want us to figure it out. The biggest play there, obviously, on the payment side, SMB side and in the payer and provider side of things. So a significant amount of focus there. We'll -- we've never had a formal health care vertical like we do government. We'll stand that up. We'll form a partnership in the SMB space around getting us greater access into health care. And we'll continue to increase our focus on sales and -- but we will have to add some subject matter expertise. And the trickiness about the health care vertical, even though you want to be in it, is significant. There's some increased compliance that goes with it, so some investment there. So government is just focus, add, run harder, get to more levels. Health care, an awesome and very exciting TAM, and just we got to do some work around it, but we're in a great position to start there.

I also want to ask about digital payments, which is a sizable business for you as well. STAR is the leading independent PIN debit network in the U.S., you generally benefit from the regulatory changes that have happened in the U.S. on the debit side, the Capital One-Discover deal, if anything, reminded us of the value of a debit network, which is driving majority of the synergies there. So tell us more about STAR and how is Fiserv growing this business?

Yes. Just one thing I want to finish on in health care is the -- in the SMB space, the #1 requested vertical from our bank partners is help in health care. They love the space, the banks, they love the SMB space in general, given the deposit-rich nature of the business. But they -- in penetrating health care, it's sort of they all want help in that. So a good focus area for us to go to. So STAR and Accel, we're third largest debit network. It's a great business, relatively sizable in scale, grows at attractive rates. We serve -- it serves both the merchants and FI. So not to harp on the construct of the company point, but just another benefit of having the two businesses. We've talked on the Merchant side of the business, some of the clients, Uber, Lyft, Domino's, Sezzle was the first quarter from the first quarter where we're in there driving low-cost routing, helping them run their businesses better. And then we play a part in 25 of the 50 largest debit card FI issuers. STAR and Accel are on those cards. Historically, I agree with you on the Capital One-Discover deal. Without it -- start without it, the network business is a really attractive business, and we want to continue to grow it. Capital One-Discover deal, a lot of banks, a lot of our FI clients had defaulted to put PULSE on the back of their card because it was -- you had to put something on the back of the card, and it was PULSE and Discover didn't -- wasn't interfering, competing with them to a great extent. We don't know how that dynamic will change with banks putting another bank on the back of their card, and we stand ready if somebody else needs an alternative to put on their card. And then we just continue to study ways, innovative ways in which we could leverage the networks better going forward. Obviously, the payments landscape is changing. It's got both governmental impacts of that, and then there's market dynamic impacts of that. And we'll be -- we continue to be on top of it and studying it carefully.

So Mike, I want to ask about capital allocation. Strong track record of good capital allocation has been a key differentiator for Fiserv, especially if you look at your peers. Tell us more about your capital allocation philosophy, areas where you may be looking to invest, acquire and if there are any changes to the existing framework we should think about?

Yes. No change to how we're thinking about the framework. We're always -- we study everything, and we obviously listen to our owners to get their thoughts on effective capital allocation. But Fiserv, studied it for a long time, it has been in a privileged position of generating substantial cash flow and having a strong balance sheet. That certainly won't change. And then as we go through the capital priorities, obviously, funding our businesses and making sure that they're in a position to support our clients and meet our clients where their needs are, so we can drive organic growth is the priority. And you can -- you've seen the capital expenditure levels the last few years in the $1.5 billion range. And then we go to buybacks and M&A. And over the last couple of years, obviously, buybacks has gotten a bulk of that, and that will continue. And then on the M&A side, we study everything. We feel like we're in a very privileged position on the M&A side because everybody comes to us, and we have a robust list of alternatives, but we put it through a very strict underwriting criteria. And what's emerged historically, now that you put aside some of the bigger type deals over the years, what's emerged is a series of highly strategic value-add deals, and we've done 4 recently. I mentioned Payfare earlier, CCV, Money Money and Pinch Payments. These are all -- as we work through, we're totally integrated with our strategy team and our business teams and as our businesses are pursuing opportunities or -- either within TAM or outside of TAM, our strategy team is right there. And we get this look at everything out there and where we can add to the value, we do it, and that will continue. So I think the easy conclusion on capital is the framework has worked and we'll continue to run the same game plan.

So Mike, we only have a few minutes left. We discussed a number of opportunities for Fiserv. What are the 2 to 3 things you believe that are less understood within the investor community as it relates to Fiserv?

Yes. I think less understood. I think at least I'll go to -- back around where I started, some of the stuff I've gone through and had an underappreciation for is really -- I would say, first is the continued value of the construct of the company with FI and Merchant under the same roof. We continue to see both a competitive advantage of having that and a multitude of opportunities that come from it. Embedded finance may be -- it may manifest itself in a lot of different ways, obviously, embedded finance is very exciting. Banks want to become more payment like, and a lot of corporates want to become more bank-like because they have -- there are certain solutions embedded in their own businesses and strategy. So certainly, that's one. I think the breadth and depth of the relationships it -- take SMBs aside. We hope they use everything on the -- we hope we put -- stand up an amazing vast platform and they use everything on it. Go to the enterprise side of the business, we are so critical and so embedded in our clients. That is a great -- as I said, it's a great honor, and it puts us in a privileged position. It also comes with a significant burden. I was with an enterprise client the other day that said -- a large regional bank that said, "We have -- we're on core, we're on credit, we're on debit, we're on bill pay. So don't forget us. We go with Fiserv." And that's -- I don't think -- we're so important as the partners in that in an increasingly competitive and dynamic landscape, our ability both to live up to the burden that comes with it, but also grow with those clients and value-added service is probably underappreciated. And then I think the global opportunity was underappreciated. And then finally, I just finish with just the quality of our people. 13,000 software engineers. There's a lot building on behalf of our clients. Not many of our clients have -- I was with one this week that said, "Three." So they need us to grow with it. So it's a great company, super honored to have the opportunity to lead it forward. We have a terrific team, and I think the growth -- value-added client-first mindset growth is in front of us.

Mike, I really enjoyed our conversation today. Thank you so much.

Yes. Well, thank you for having us.