Fiserv is almost a dinosaur in what is now called the fintech, that is to say the universe of companies positioned at the crossroads of finance and technology. Founded in 1984, this Wisconsin company – California does not have a monopoly on innovation – is a dominant player in very specific technologies that ensure the fluidity of financial transactions. Nearly 40% of its business is based on money movement acceptance and invoicing solutions, in particular the Carat and Clover platforms. And 35% of its revenue comes from payment and funds transfer technologies (issuing and processing credit cards, digital payment). Finally, Fiserv develops and markets software for managing financial services intended for specialized institutions, for 25% of turnover. Until recently, international development was not the priority of the company, which retains a strong foothold in the United States (86% of its activity).
The business model, which is growing steadily, is characterized by very high profitability. Operating margin historically exceeds 30% and cash generation is outstanding, with a leading free cash flow conversion rate. Fiserv makes money through royalties, licenses, and transaction volume grabs. It operates in a highly regulated sector, where reliability and seniority erect significant barriers to entry. Customers are reluctant to switch providers when the system works. In the sphere of large accounts, Fiserv takes advantage of its excellent reputation and the conservatism of financial institutions to maintain its lead. Within smaller organizations and among retailers, competition is fiercer, but the group is doing well thanks to its sales force and financial strength, which allows it to carry out targeted external growth operations to strengthen its offering in the blind spots of in-house R&D.
Record margins
All these qualities have not prevented the title from vegetating on the stock market in recent years. It did not sparkle in 2022, a bad vintage for the stock market as a whole. But it had already fallen in 2021. And in 2020. Two explanations for this. First, Fiserv had to manage the integration of First Data, acquired for $22 billion in 2019. This major operation caused some operational disruptions. But it made sense from a strategic point of view, since it widened the scope to commercial activities, in particular point-of-sale payment terminals. Secondly, the emergence of the young shoots of the fintech relegated industry veterans to the background by promising their aging models a thousand ills. It took some time for investors to realize that this was actually a smokescreen. The players in place have the answer and recent financial innovations have not shaken the big platforms like Fiserv.
The latest figures prove it: the company returned to double-digit growth at the start of the year and should achieve record margins in 2023. These high results will make it possible to reduce the indebtedness, which took off a little following the takeover of First Data. Net debt peaked at $20.5 billion at the end of 2022. It is expected to fall below $14 billion by the end of 2025. Management has recently multiplied messages of confidence. Sometimes with a touch of cynicism, especially when the CEO pointed out that Fiserv’s performance shows that its strategy is the right one in the face of the often embellished start-up narrative.
The company is clearly restoring its image. This has not escaped the notice of several managers renowned for their vista, who have reinstated the title in their selections. A positive sign for the future.