Inflation hits margins hit at FIS

FIS reported moderate growth in its merchant solutions business in Q2 2022. Revenue was up 11% but margins contracted by 280bps. Woody Woodal, CFO, said “We continue to see wage inflation as an ongoing challenge” but he was relaxed about wider price increases as “we’ve been able to offset rising costs.”

Sales were boosted by a strong performance by the Global eCommerce division which was up 28%. Airline and travel clients have bounced back after the pandemic. The enterprise and SMB sectors saw revenue growth at under 10%. 

Margins were hit by the impact of disinvestment in Russia (100bps), extra investment to support Global eCommerce and in beefing up domestic sales channels to support online merchants following the Payrix acquisition earlier this year.

Payrix is a payment-as-a-service offering that allows eCommerce ISVs to integrate payment processing with their software, either as a payment facilitator or simply white labelling the standard merchant acquiring offer. Payrix gives FIS access to a large and growing market segment but also the opportunity to upsell eCommerce payments to its in-store ISV partners. 

Gary Norcross, CEO, is particularly excited about the new partnership with Signifyd which allows FIS to offer guaranteed payments to its merchant customers. Many online merchants are at significant risk from fraud and miss out on business by setting their parameters too strictly and rejecting good customers. With Worldpay Guaranteed Payments, FIS decides which customers are honest and shoulders the risk of fraud or chargebacks if the transaction goes bad. Merchants are assured that they will get paid and, says FIS, are prepared to pay handsomely for this. According to Norcross “we’re able to increase our revenue… doubling what we’re earning over processing revenue.”

FIS is a huge company which means some quite large numbers can be lost in the small print. Constructing the new HQ is not a cheap exercise with a total of $156m spent in the past twelve months. And FIS booked a further $160m “associated with the company’s platform modernisation.”