Fiserv beats inflation with solid merchant acceptance gains in Q2 23

Fiserv beats inflation with solid merchant acceptance gains in Q2 23

Payments and financial services provider Fiserv has announced its Q2 2023 results. Despite fears that growing inflation in the US could negatively affect consumer spending, the company has seen its ninth consecutive quarter of double-digit organic revenue growth (which excludes currency and acquisition impacts).

Adjusted revenue increased by 6% to $4.51bn in Q2 23, and 8% to $8.79bn in the first six months of 2023 compared to last year. These gains were largely driven by the company’s merchant acceptance and payments segments. Meanwhile, the company’s adjusted operating margin (an indicator of Fiserv’s overall profitability) rose by 300 basis points to 36.5%. 

On the back of its results, Fiserv has updated its guidance and now expects a 7-9% total revenue rise in 2023, while organic revenue is expected to rise by 9-11%. The company also revealed that it has completed the sale of its financial reconciliation business for approximately $230m.

Merchant acceptance remains a key revenue driver for Fiserv

Fiserv’s merchant acceptance segment – through which it provides its Clover and Carat services – continued to be the top performing segment. Organic revenue grew 10% overall in the quarter, with 14% in acceptance, 9% growth in payments and a 1% decline in fintech. 

Fiserv revenue rises with merchant acceptance growth
Fiserv yearly revenue and operating margin, 2019-2022 and 2023 est.

Clover – Fiserv’s cloud-based PoS solution – surged this month, with annualised gross payment volumes surging by 15% to $267bn in Q2 23, while revenues grew by 23% YoY. Continued penetration of the platform in new markets and amongst new merchants (specifically smaller businesses) has driven these results. We explored how payments companies are looking to capitalise on shifting commerce trends with new PoS launches in a recent piece.

Clover (PoS system) volume grows rapidly in Q2 23
Clover annualised gross payment volume and revenue growth rate, 2021-2023

However, while overall merchant volumes and transactions have continued to grow, it’s worth noting that the rate of growth has declined compared to previous quarters. Volumes and transactions both grew by 1% in Q2 23, compared to 10% and 7% respectively over the same period last year. The rate of adjusted revenue growth is also lower at 9%, compared to 14% last year. 

Fiserv executives did mention that for Q2 23 specifically, lower volumes reflected declining retail fuel prices (thereby affecting volume processed by merchants selling it), as well as some strategic alignment among some of Fiserv’s larger clients.

Payments segment increases while fintech declines

Fiserv’s payments segment saw higher adjusted revenue growth in Q2 as the company looks to expand its digital payments services (for example, by launching digitally issued cards). Mobile payment service Zelle, for which Fiserv is a processing partner, saw transactions grow by 44% while the number of clients grew by 29%. 

Zelle has been part of the conversation surrounding FedNow, the US Federal Reserve’s recently new instant payment system, which in years to come could lead to the development of rival mobile payment products. Fiserv has been supporting the development of the new system, with 100 of its clients committing to join the payment rail in the coming months, but which executives said in the call will require more use cases to really drive adoption. 

In the fintech segment, adjusted revenues declined for the first time since the global pandemic, which could be a signal of the difficult macroeconomic conditions many in this space are currently facing.

Fiserv growth rate slows across acceptance and fintech segments
Fiserv adjusted revenue growth rates, 2020-2023

Could Fiserv have more acquisitions in the pipeline? 

Though there was no acquisition news from the earnings call, Fiserv recently completed a public offering of €800m, which some have speculated could be used towards funding further M&A activity. 

Fiserv is a company built on acquisitions, having completed approximately 40 since the start of the millennium – a sizeable number compared to other payments players. In 2022, it acquired core banking platform Finxact for $650m to advance its move into digital banking services. In 2019, it acquired First Data, which facilitates acceptance for millions of merchants worldwide. 

Further acquisitions could help bolster the company’s merchant acceptance arm, as well as its presence in other geographies such as LatAm, where Fiserv has boosted business – for example, by allowing merchants in Argentina to begin taking payments via Pix, Brazil’s instant payments system. 

Fiserv executives said that they would go into their growth strategies in more depth at an upcoming investor day on 15 November. 

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