Fiserv reported a solid quarter of reasonably broad-based growth with its Q3 results. “This demonstrated the resilience of our business model and should position Fiserv well to withstand current uncertainty,” said Frank Bisignano, CEO.
Of Fiserv’s three operating units, it is Merchant Acceptance which interests us at Business of Payments. This division accounts for 41% of total revenue and profits.
Merchant payment volume was up 8% in Q3 and transaction growth up 5%. Volume was impacted 2 ppts by loss of a processing client. Although operating worldwide, only 14% of Fiserv’s revenue is outside the US so currency translation causes less distortion than at many of its competitors.
Fiserv does not publish its sales by geography, but has underperformed on our side of the Atlantic. Bisignano said “We did not have a great quarter in the European theatre.” Management is hopeful of an upturn. “[We] see new opportunity with the launch of our Deutsche Bank joint venture in the quarter,” said Bob Hau, CFO [See Deutsche Banks’s Vert is looking a little Green]
Merchant acceptance revenue grew 9% to $1.88bn in Q3 split between 10% growth in processing and 7% in product sales.
Management believes the uncertain macro environment has been helpful as merchants are looking to consolidate multiple vendor relationships. This favours full service providers such as Fiserv and explains the good performance of Clover and Carat (the rebranded enterprise segment) which grew revenues 19% and 18% respectively. More details below. It also explains the less positive performance of the remaining business lines – SMB (excluding Clover) and processing – which we calculate were up just c.3% in Q3.
Merchant Acceptance adjusted operating income [roughly equivalent to EBITDA] rose 11% to $610m as margins expanded 30bps to 32.5%.
Fiserv “mutually terminated” its Korean joint venture and booked a $120m loss.
Merchant credit losses ticked up to $18m in Q3, roughly 1% of turnover. Fiserv keeps a very chunky $1.9bn collateral from merchants as security against future losses.
Cashflow has been impacted by supply chain issues in China relating to point-of-sale devices. Anecdotally, many acquirers are suffering from inconsistent deliveries from vendors but only Fiserv has called this out.
Clover had another good quarter. Payment volume was up 21% and revenue up 19%. Reflecting continued upselling beyond processing, software/services now account for 15% of Clover revenue, up 260bps year on year. New wins included Caesars Superdome in New Orleans, demonstrating that Clover can scale from single site to multi-lane high frequency use cases.
Fiserv has extended Clover’s distribution by commercialising an ISV-friendly version – Clover Connect. This added a very impressive 37 new partners in the quarter including Salon Ultimate Software, a comprehensive solution for salons and spas.
Adding to Clover’s software ecosystem, Fiserv acquired NexTable in September. This table management and booking solution enhances BentoBox, which was purchased earlier this year. Management has been very pleased with BentoBox as merchants which take this software alongside Clover generated 3x ARPU versus a Clover only restaurant.
Carat, the omnichannel operating system for enterprise clients also out-performed with revenue up 18% in Q3. In recognition of Carat, Fiserv won “Merchant Acquirer of the Year” at the MPE Awards in July. Carat is really just a clever marketing wrap for Fiserv’s existing capability but there’s no shame in that.