Fiserv, the financial technology company, has reported strong Q4 2022 results, offering a glimmer of hope to investors who have been unimpressed with the financial performance of quoted payment companies as of late. In contrast to its peers, FIS and Global Payments, who are struggling to explain why bank and merchant processing sit well together, Fiserv reported broad-based growth across all three of its business units.
CEO Frank Bisignano stated that the business heads into 2023 “as a unified company that’s better than the sum of its parts … our vision for the cross-sell opportunity between Fiserv and First Data offerings has become reality.” He went on to say that “synergies are apparent, for example, between acquiring and core banking and embedded finance and card issuing services across multiple verticals.”
Revenue rose 9% in the fourth quarter to $4.6bn, with solid increases in turnover across the Merchant Acceptance, Fintech, and Payments/Networks divisions. Although the company does not break down its revenue by geography, CFO Bob Lau noted growth in EMEA, particularly in the issuer space, and added that the Deutsche Bank joint venture is now live and beginning to contribute to growth. See Deutsche Bank’s Vert looking a little green.
Profits were driven by effective cost control. The company saw a 7% year-on-year decrease in expenses, with a particularly sharp drop in the cost of processing and services. This was accompanied by a 1% reduction in SG&A expenses to $1.49bn compared to the 6% rise reported by FIS.
With revenues up and costs flat, operating income for Fiserv more than doubled to $1.179bn, although the year on year increase was flattered by some large acquisition-related expenses from 2021. Adjusted operating income growth was 20%.
Looking at divisional performance, Merchant Acceptance, the unit of most interest to Business of Payments, grew its processing volume by 5%, lagging a little behind the 7-8% reported by Visa and Mastercard. Total transactions only grew by 3%. However, Fiserv management aims to present itself service provider, with a focus on metrics such as average revenue per user (ARPU) and customer lifetime value (LTV) instead of volume growth.
Revenue in the Merchant Acceptance division increased by 9% or 16% at constant currencies. Adjusted net income grew 22% to $648m in the fourth quarter with margins expanding by 350bps to 35%, as a result of “operating leverage and productivity“.
The SMB proposition, Clover, and the enterprise proposition, Carat, both outperformed, with sales growth of 23% and 15% respectively. The number of Clover merchants rose 9% in 2022, and payment volume increased by 16% in the final quarter.
Clover’s KPIs are all moving in the right direction. The penetration of value-added services reached 16% in the quarter, up from 13% last year, with ARPU growing 12%. For example, where Clover customers subscribe to BentoBox (a restaurant ordering/payment solution that has been part of the Fiserv family since the end of 2021), the company is seeing three times increase ARPU. The new Clover Capital merchant cash advance product is said to be “growing rapidly and favourably impacting customer attrition.” Bisignano noted that Fiserv is on track to reach $3.5 billion in Clover revenue by 2025.
Fiserv is investing in the independent software vendor (ISV) channel, which it considers a low-cost way to onboard fast growing merchants. The company added an impressive 174 ISV partners in 2022 and is building its PayFac, marketplace, and software platform with technology from the newly-acquired UK-based NetPay.
The company also announced two more acquisitions: Merchant One, a long-standing Fiserv ISO based in Miami Beach, which will strengthen Fiserv’s direct channel and offer more opportunities to sell Clover, and Yacare, an Argentinian QR-based payment wallet.