Fiserv Inc

NYSE:FI

Earnings Call Analysis

Fiserv Reports Strong Q2 2024 Growth, Raises EPS Guidance

Fiserv showed impressive Q2 2024 results with adjusted earnings per share rising 18% to $2.13, driven by a 7% increase in adjusted revenue to $4.8 billion. Organic revenue surged 18%, propelled by robust growth in key sectors like Clover, which saw a 28% revenue boost. Financial Solutions' organic revenue grew by 8%. Fiserv returned $1.5 billion to shareholders through share repurchases. The company raised its full-year EPS guidance to $8.65-$8.80, up from $8.60-$8.75. Despite varied economic conditions, Fiserv remains optimistic, forecasting 15-17% organic revenue growth for 2024.

Solid Performance and Strong Financials

Fiserv delivered a strong performance in the second quarter of 2024, with an 18% increase in adjusted earnings per share (EPS) to $2.13, driven by 7% adjusted revenue growth and a 160 basis point increase in adjusted operating margin to 38.4%. The company’s free cash flow was $1 billion for the quarter and $4 billion over the last 12 months, highlighting robust cash generation capabilities.

Organic Growth and Sector Highlights

Organic revenue growth was notable at 18%, with the Merchant Solutions segment achieving a 28% increase. Adjusted revenue for Merchant Solutions rose 9%, despite a 19 percentage point currency headwind, largely due to the Argentine peso's devaluation. Specific standout areas included the Clover platform, which saw a 28% revenue increase on the back of a 17% rise in annualized payment volume. This growth was also supported by increased penetration of value-added services (VAS).

Big Wins and Strategic Developments

Fiserv secured significant contracts with marquee clients such as Verizon and Apple, and expanded into vital verticals like petroleum, gaming, government, and healthcare. Additionally, the company commemorated the 40th anniversary of its founding and the fifth anniversary of the Fiserv-First Data merger, noting successful realization of revenue and cost synergies from the merger.

Financial Solutions Segment Updates

The Financial Solutions segment posted an 8% organic revenue growth, driven by advancing technologies and new client acquisitions. It included significant wins such as Metropolitan Commercial Bank migrating to Finxact, and the successful integration of Finxact with Commerce Hub facilitating enterprise merchants embedding financial services in customer experiences.

Guidance and Forward-Looking Statements

Looking ahead, Fiserv raised its full-year adjusted EPS guidance to a range of $8.65 to $8.80, reflecting an upwards revision in expected EPS growth to 15-17%. Despite challenges, the company maintained its 2024 organic revenue growth outlook of 15-17%, and increased the adjusted operating margin expansion guidance to over 135 basis points. The free cash flow outlook was also adjusted up to $4.7 billion.

Impacts of External Factors and Future Outlook

While excess inflation and interest in Argentina added to growth in the past, a more rapid normalization to historical averages is expected, reducing this positive impact. Even so, Fiserv reaffirmed its organic growth guidance. The company continues to leverage a broad product portfolio and a diverse client base amidst shifting economic conditions. Additionally, new product launches and market expansions in countries like Brazil and Mexico are expected to contribute to growth in the upcoming year.

Investing in Innovation and Technology

Continuing its focus on innovation, Fiserv revealed investments in AI and data analytics as part of its strategy to drive future growth. Especially noteworthy was the initiative to use data for antifraud solutions and the successful launch of the Fiserv Small Business Index, which offers real-time insights into consumer spending.

Conclusion and Closing Remarks

Fiserv's strong quarterly results and strategic moves underscore its resilient business model and adaptability. With raised earnings guidance and a wide portfolio of growing solutions, the company demonstrates a robust path forward, promising continued value creation for its shareholders.

Earnings Call Transcript 2024-Q2

[Operator]

Welcome to the Fiserv Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I will turn the call over to Julie Chariell, Senior Vice President of Investor Relations at Fiserv.

[Julie Chariell, executive]

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com.

Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call along with a reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons.

Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors.

And now I'll turn the call over to Frank.

[Frank Bisignano, executive]

Thank you, Julie, and thank you all for joining us today to discuss second quarter results that bring us closer to another year of double-digit organic revenue and adjusted earnings per share growth.

Fiserv delivered strong results across our businesses, with second quarter adjusted earnings per share of $2.13, up 18%, driven by continued healthy revenue growth and further operating margin expansion. Adjusted revenue growth was 7% and adjusted operating margin rose 160 basis points to 38.4%. Organic revenue growth was 18%.

We can point to many highlights in our business during the quarter, including Clover revenue, up 28%, accelerated organic revenue growth in Financial Solutions to 8%, multiple wins with marquee clients, including Verizon and Apple, plus new clients in important verticals such as petro, gaming, government and health care.

Our free cash flow was $1 billion in the quarter and $4 billion over the last 12 months, and we returned $1.5 billion to shareholders via share repurchases.

This month, we are celebrating the 40th anniversary of Fiserv, along with the fifth anniversary of the merger between Fiserv and First Data. Our vision back in 2019 was that we brought together scaled platforms supporting a full breadth of solutions, merchant acquiring, debit and credit issuer services, digital payments of all kinds and core bank account systems modernized with cloud technology, then clients would find value in the combination when the integration and Fiserv will become a partner of choice with unparalleled global reach. Today, we can see that's exactly what has happened.

As we realized revenue and cost synergies over this time, we increased our investment in technology innovation. Our purpose has been to deliver solutions to clients of all kinds, established and new, large and small, local and global, spanning all verticals.

With the proper amount of disrupting ourselves then and now, Fiserv is better able to run, optimize and grow our business and now we find ourselves at this moment. Singular in our ability to deliver a breadth of leading products across a diverse base of clients and demonstrating accelerated growth for the past 3 years.

After 5 years of innovation, in some ways, what's old is new again. Let me share 3 examples of how our clients are engaging in some of our traditional businesses as new ways to add and retain their own customers.

First, in merchant acquiring, banks are adding this service as a way to grow with small- and medium-sized business customers and choosing Fiserv for its leading solutions, including Clover. We already have nearly 900 financial institutions who offer merchant processing services to their small business clients and thousands more who can still benefit from doing so. As an example, in Q2, we signed a merchant agreement with Connecticut Online Computer Center known as COCC, which is a client-owned provider of banking technology.

The 150 community banks and credit unions on the COCC platform now have access to our acquiring services in support of their own hundreds of thousands of merchants.

Second. In digital payments, Cash Flow Central takes the best of consumer bill pay and turns it from a cost center within banks to a revenue generator that appeals to small business with bill payment and presentment capability.

In the second quarter, we signed 2 more cash flow essential deals with multibillion-dollar banks for a total of 6 in a few months since we introduced the solution. Cash Flow Central will go live this quarter and the pipeline remains full.

We are finding that as they go down this path, financial institutions are revitalizing their consumer bill pay offerings as well, answering the competition from the direct biller model. First Citizens, a top 20 U.S. bank with more than $200 billion assets, was 1 such consumer bill pay win in Q2. As a reminder, Fiserv is the largest provider of bank consumer bill pay a services with over 20 million users on our check free platform.

Both merchant acquiring solutions and Cash Flow Central are compelling because they provide revenue-generating opportunities for our financial institution clients. They also demonstrate a distinct value proposition for small businesses, which includes other products across our issuing and banking businesses.

Next, we are integrating these solutions with experienced digital or XD, our new online and mobile banking solution. And third, traditional enterprise merchants are turning to software that surrounds their payment functionality to enhance revenue and improve data integration, as we've seen from small businesses.

The large- and mid-market merchants who have been migrating to our omnichannel platform are increasingly integrating our value-added solutions. These include SnapPay, our ERP integrated B2B bill presentment platform; Gift Solutions, where we support multiple leading retail and QSR enterprise clients; and Data Analytics, which I'll discuss a bit later.

We continue to invest in new solutions such as our new dedicated platform for paybacks, which is gaining momentum. In the second quarter, for instance, we were selected by a major provider of unattended payment devices such as vending machines for our exchange PayFac platform.

And we continue to integrate solutions across our 2 segments. One important example is our new partnership with Apple. That will enable new Apple pay functionality with 2 of our next-generation solutions. One is pay with points, where the loyalty points residing on the card accounts of our issuer clients can be redeemed for a transaction in the ApplePay Wallet at checkout, serving as currency.

We're a natural partner given the breadth of our cards accounts on file and our technical capability to maintain account point balances, convert and accept those points as payments and then reconcile the balances.

Our second solution is installment loans on credit cards. This is a new feature that presents the consumer with the choice to pay for a purchase in a set of installments when using ApplePay as checkout. This is differentiating in that consumers have only been provided with the option to pay for a purchase and installments after making a purchase on a credit card.

With Apple, we will move this installment loan feature into the checkout flow, giving the consumer choice at the point of purchase. Having this functionality at the point of sale from a digital wallet can drive greater cart conversion, card usage and spending power.

It also enables our issuing partners to more directly compete with buy now pay later using their existing credit card products. Fiserv is unique in its reach across all parties involved here: the consumer, the digital wallet provider, the issuer and the merchant. So we see multiple opportunities ahead as we enable this network effect to be a win-win across the ecosystem.

So let's turn to our outlook for the business. Based on strong performance in the quarter and conviction in our unique opportunity set, we're raising our adjusted earnings per share outlook to $8.65 to $8.80, an increase of $0.05 across the range.

Our revenue outlook is unchanged at 15% to 17% organic growth. This performance for 2024 would represent the 39th consecutive year of double-digit adjusted EPS growth.

Turning to our segment highlights. In Merchant Solutions, starting with small business, we posted 4% volume growth, slightly ahead of the sales volume growth for the Fiserv Small Business Index, which rose 3.2% in Q2 as the pace of growth slowed from April to June.

There are multiple reasons why our growth can differ from this U.S.-only index, including our global presence and different weightings across verticals. For Clover, we have a very active second half of the year for new product rollouts.

We plan to launch additional restaurant software features that target our sweet spot in casual dining, the enhanced table management, kitchen operations, inventory and cost management. In the fourth quarter, we'll be rolling out new software offerings in our 2 other target verticals, services and retail.

We are very pleased with initial sales of our restaurant order kiosks, and now we look forward to 2 new hardware opportunities. First is the Clover Compact, which we rolled out this month, giving us a broader market opportunity with smaller merchants; and next, an important solution for our restaurant clients, order and pay at the table via a new handheld Clover Flex Pocket coming in August.

And we are on pace with our international expansion. Pilots are set to go-live in Brazil and Mexico in August and then in September in Australia ahead of the 2025 launch.

In the enterprise merchant business, the key driver is the ongoing adoption of Commerce Hub, the orchestration layer that allows for easy integration with our growing portfolio of value-added solutions. We now have 230 clients live on Commerce Hub and signed several more in Q2, including 2 large petro retailers to extend our leading position in this vertical.

Our Financial Solutions segment posted strong organic revenue growth at 8% in the quarter, above the high end of our 2024 guidance range. We delivered faster organic growth in our banking business. while our core banking and credit union clients continue to drive strong growth in our digital payments business.

We are adding new clients as well. In the second quarter, we had another example of winning the core account processing business in an M&A transaction. In this latest case, Sun Valley Bank chose Fiserv after intent to acquire HomeStreet Bank to create a $17 billion bank by assets in January.

In issuing, we manage the credit and loan accounts for some of the world's leading issuers and provide technology to issuers and lenders in health care, government and education.

In June, we're very pleased to have won a strategic outsourcing agreement with Verizon to support their device financing activity and manage device payment agreements on Fiserv's Optus platform. Verizon chose Fiserv for the flexibility, optionality and resiliency of our platform on the foundation of a trusted long-standing relationship that spans multiple solutions.

This is another example of extending our issuer and loan processing capability into adjacent verticals. In fact, we won another point-of-sale financing deal with industrial equipment manufacturer to offer short-term loans through a dealer network across the globe using our First Vision platform.

With that, I'll turn it over to Bob to discuss more on our performance and financials.

[Robert Hau, executive]

Thank you, Frank, and good morning, everyone. If you're following along on our slides, I'll cover additional detail on total company and segment performance, starting with our financial metrics and trends on Slide 4.

Our performance in the second quarter showcased our ability to sustain strong revenue growth and margin expansion. Second quarter total company adjusted revenue grew 7% to $4.8 billion and adjusted operating income grew 12% to $1.8 billion, resulting in an adjusted operating margin of 38.4%, an increase of 160 basis points versus the prior year. For the first half of the year, adjusted revenue grew 7% to $9.3 billion and adjusted operating income grew 13% to $3.5 billion, resulting in an adjusted operating margin of 37.2%, an increase of 180 basis points versus the prior year.

Organic revenue grew 18% in the quarter with strength in both segments. The transitory contribution from Argentina was 5 points to our total organic growth in the quarter, down from 7 points in Q1.

In the first 6 months of the year, organic revenue grew 19%. Second quarter adjusted earnings per share was $2.13 compared to $1.81 in the prior year, up 18% and above previous full year guidance of 14% to 16%.

Year-to-date, our adjusted earnings per share increased 18% to $4 compared to $3.38 in the prior year. Free cash flow for the quarter was $1 billion and $1.5 billion for the first half of the year. We expect free cash flow to be much higher in the second half of this year due to the timing of cash flows for the green tax credit program.

Turning to performance by segment. Starting on Slide 5. Organic revenue growth in the Merchant Solutions segment was 28% in the quarter and 32% year-to-date. For the quarter, this includes a 10-point benefit from above-average interest and inflation in Argentina. Without this transitory benefit, organic growth would have been 18%.

On Slide 6, we've again included a summary of the impact of excess Argentine inflation and interest on total Fiserv and Merchant segment revenue, along with the offsetting headwind from currency devaluation, which impacts adjusted revenue.

Adjusted revenue growth for Merchant Solutions was 9% in the quarter and 11% year-to-date. The quarterly results include a 19 percentage point currency headwind largely from the Argentine peso after a sharp devaluation in late December last year.

Similar to Q1, the currency headwind to adjusted revenue growth was much higher than the inflation and interest tailwind in Q2.

Moving to the business lines. Small business, organic and adjusted revenue growth in the quarter was 35% and 13%, respectively. Clover revenue grew 28% in the second quarter on an annualized payment volume growth of 17%. The spread between revenue and volume growth continues to reflect a higher penetration of value-added solutions, continued channel mix shift and value-based pricing.

VAS penetration stayed constant sequentially at 20% in Q2, an improvement from prior years, where we typically see a seasonal decline from Q1 to Q2. VAS penetration was driven by growth in Clover Capital and the Clover SaaS package and should expand with several new offerings coming in the second half.

Overall, we remain on pace to meet our 2026 targets. Enterprise organic and adjusted revenue growth in the quarter was 27% and 9%, respectively, driven by transactions growth of 8% and higher VAS penetration.

As with small business, organic growth at enterprise includes some transitory benefit from excess inflation and interest in Argentina. We're pleased with the pace of client uptake and growth in Commerce Hub.

Daily transactions in Commerce Hub are up 3.5x from Q1 levels and clients are increasingly connecting to enhance solutions. Three of the most popular are pay by bank, which allows consumers to pay via ACH payment from their bank account at the point of sale.

Online EBT, which lets merchants grow by offering payment via government benefit programs; and digital payouts, which merchants increasingly use to pay employees and vendors. Finally, processing, organic and adjusted revenue in the quarter declined by 7% and 8%, respectively.

This business represents the back-end processing we do for our partners where they own the merchant relationship. A few large processing clients experienced declines in their volumes and revenue in Q2. Year-to-date, processing organic and adjusted revenue are both up 1% and similar to our guidance for flat adjusted revenue over the medium term. Turning to some merchant highlights outside the U.S. First, in EMEA, the general tone of business is improving as inflation is easing, and consumer confidence begins to rise across the region.

We had a good quarter for new wins and renewals with follow-on business and we are finding that our professional services capability in the region is a competitive differentiator that reinforces our right to win.

We expanded our strategic partnership with BNP Paribas, one of the leading banks in Europe, allowing it to extend its current merchant acquiring footprint into Germany. Also in Germany, H&M Group, the second largest clothing retailer in the world selected us as their strategic partner for point of sale, building on our existing relationship in Mexico and highlighting the value we bring to multinational retail clients.

We are also working with Lloyds Banking Group, one of the leading banks in the U.K. and a key partner for Fiserv, on a major business transformation program for Cardinet, our merchant acquiring joint venture. Together, we will deliver tailored solutions, including Clover, dynamic currency conversion and merchant cash advance to add new and grow existing merchant relationships.

We've also been selected by Deutsche Bank, the National Railway Company of Germany and one of the largest railway companies in the world to provide terminals, network services, and value-added solutions. We extended our relationship with Absa, one of Africa's largest diversified financial services groups. We will be implementing our full solution or acquiring as a service, which will allow to process e-commerce transactions in 9 African countries. integrates multiple value-added solutions, including payment gateway, merchant onboarding, merchant portal, omnipay back office, open FX and real-time fraud monitoring.

And finally, we've extended our merchant acquiring relationship with Polska, the largest convenience store chain in Central and Eastern Europe based in Poland with over 11,000 stores. We've grown to provide more than 20 products to this innovative client, most recently adding Merchant Cash Advance, a growing value-added solution for us in the region.

Moving to Latin America. In Brazil, the extension of our cash relationship to their bill pay locations has begun to ramp with sequential volume growth of over 20% in Q2. In addition, we went live with our pilot for our platform to act as a payment service provider to over 30 merchants. This capability came through the acquisition of SLED in November of 2023 and will open up new growth opportunities from instant payment activity in Brazil.

Overall, we continue to grow our instant payment transactions in Brazil and Argentina. In Brazil, we reached more than 400 million transactions in Q2, up 21% from Q1 levels, and we doubled our number of transactions in Argentina.

In Asia Pacific, we went live with our pilot merchant acquiring services in New Zealand, a new market for Fiserv. We plan to target omnichannel merchants primarily in the hospitality and retail segments as well as e-commerce-only merchants, aggregation partners and PayFac. Adjusted operating income in the Merchant Solutions segment increased 18% to $882 million in the quarter, with adjusted operating margin up 290 basis points to 36.6%.

Year-to-date, adjusted operating income increased 23% to $1.7 billion with adjusted operating margin of 360 basis points to 35.4%. As noted last quarter, interest expense from anticipation revenue is recorded below the operating income line. If the interest cost from anticipation were included in operating income, merchant adjusted operating margins would have expanded 220 basis points for the quarter and 300 year-to-date.

Turning to Slide 7 on the Financial Solutions segment. Organic revenue grew 8% in the quarter and 6% year-to-date, in line with our full year outlook of 5% to 7%.

Looking at the business lines. Digital payments organic and adjusted revenue each grew by 8% in the quarter. Growth in Zelle transactions continue to be strong at 43%, and we signed one of our largest bank clients yet on Zelle, First Horizon Bank, with $82 billion in assets and the pipeline includes other large prospects.

We continue to see strong demand from clients for FedNow and RTP integration. In Q2, we signed 32 FIs to FedNow, bringing our total signed to nearly 300. In issuing, organic and adjusted revenue grew 9% and 4%, respectively, in the quarter. driven by account growth internationally and new loan accounts in North America. Another growth vertical that we've been highlighting is government, where we continue to win and convert large programs including the California Employment Development Department, which has enrolled over 1 million of our MoneyNetwork prepaid cards funding nearly $5 billion.

In Q2, we won an electronic funds transfer mandate with a major U.S. agency, which should help extend our double-digit growth in the federal market. We've also won several state and local deals on the merchant side of the business, including Texas, Arizona, North Carolina and the city of San Francisco.

Meanwhile, we are continuing to make strides with prior large wins, implementing the first phase of the target program with output services. Though we expect the vast majority of revenue will start in Q1 2025 when the circle card accounts begin to go live.

Issuing has a meaningful and growing presence outside the U.S., and we have been investing to roll out the next generation of FirstVision, our international operating platform. In Q2, we won our first client on the new FirstVision platform in Brazil. Banking organic and adjusted revenue grew 6% and 4%, respectively, in the quarter. Excluding periodic revenue, organic revenue grew 4% in the quarter.

We had 2 Finxact wins this quarter, including Metropolitan Commercial Bank, a $7 billion bank and an existing Fiserv core client that has decided to build a migration path to Finxact. The pipeline remains robust, including embedded finance opportunities and we completed the integration of Finxact with Commerce Hub. This allows our enterprise merchants to embed a robust suite of financial services for their customers across shopping and checkout experiences.

Second quarter adjusted operating income for the Financial Solutions segment was up 6% to $1.1 billion, and adjusted operating margin was consistent with a very strong second quarter last year, at 45.9%.

Year-to-date, adjusted operating income for the segment was up 6% to $2.1 billion, with adjusted operating margin up 80 basis points to 45%.

Now let me wrap up with some remaining details on the financials. The corporate adjusted operating loss was $134 million in the quarter and $282 million year-to-date, in line with our expectations. The adjusted effective tax rate in the quarter was 19.9% and 19.1% for the first half, and we continue to expect the full year rate to be approximately 20%.

Total debt outstanding was $25.5 billion on June 30. Our debt to adjusted EBITDA ratio was steady at 2.8x within our target leverage range. During the quarter, we repurchased 10 million shares for $1.5 billion, bringing our total cash return to shareholders for the last 12 months to just over $5 billion and nearly $15 billion since the 2019 merger. We had 32 million shares remaining authorized for repurchase at the end of the quarter.

Turning to Slide 9. As Frank said earlier, we are raising our full year adjusted earnings per share outlook to a range of $8.65 to $8.80, up from $8.60 to $8.75 in an acceleration in forecasted adjusted EPS growth to 15% to 17% from 14% to 16%.

We are maintaining our 2024 organic revenue growth outlook of 15% to 17% and raising our estimate for adjusted operating margin expansion to more than 135 basis points compared to at least 125 basis points.

Previously, our organic growth guidance assumes 7 points of contribution from excess inflation and interest in Argentina. But during Q2, we saw faster-than-expected decline in both measures. This more rapid return to the historic average is good news for our Argentine business and overall stability in the region. However, the extra revenue contribution will now be less this year. Based on the latest economists consensus, we now assume 4 points of benefit from excess inflation and interest this year, down from 7 points.

Nevertheless, we are reiterating our previous organic growth guidance for the year despite exogenous shifts affecting our business. This capability has become a hallmark of Fiserv today. It is a testament to the adaptability of our business model that comes from a broad product portfolio, diverse client base, resourceful management team and global reach.

This quarter, we offset the lower inflation and interest benefit in Argentina with additional anticipation revenue, another quarter of revenue and other growth across the company. Our full year outlook of 15% to 17% total company organic growth, less the 4-point transitory benefit from inflation and interest in Argentina, puts our normalized growth at 11% to 13% for 2024.

This is in line with our medium-term guidance of 9% to 12% which assumes macro factors from Argentina continued to normalize. The forecasted impact from foreign currency exchange remains 8.5%, and we anticipate will continue to be a stronger, though declining headwind to adjusted revenue growth relative to the tailwind from excess inflation and interest.

Wrapping up with free cash flow. First, I'd like to note a change to our cash flow reporting. We moved the Clover Capital and LatAm anticipation activity to the investing section of the cash flow statement beginning in the second quarter. We reevaluated the presentation in our cash flow statement given a significant increase in the merchant cash advance activity. This change is consistent with how our peers have come for these activities and the additional disclosure will provide greater transparency to our investors.

This move affected our free cash flow since those amounts are no longer included in cash flows from operating activities, so we are adjusting our full year free cash flow outlook accordingly by increasing our guidance to $4.7 billion from $4.5 billion, since we expected $200 million of outflows for merchant cash advances when we originally set our 2024 outlook.

With that, let me turn the call back to Frank for some closing remarks.

[Frank Bisignano, executive]

Thanks, Bob. There's another value creation opportunity within post-merger Fiserv, and that's data. The proposition for us in extracting intelligence from the massive amounts of data that we generate daily is significant and can be an important growth driver beyond the medium term.

Three years ago, long before AI was the hot topic it is today, we assembled a team of internal and external experts in the fields of data science and AI. We gave them a mandate to harness all of the data naturally captured through Fiserv transactions and account processing activity to drive actionable intelligence for us, the marketplace and our merchant and financial institution clients.

There are 3 advantages that Fiserv has in its data: available in real time, it's granular to the transaction level and it's multifaceted in that expands merchant issuing and banking activity. This makes our data quite powerful to apply an antifraud solutions, which we are doing internally with plans for client-facing solution this fall.

Our first grade applications to the market is the Fiserv Small Business a real-time assessment of consumer spending at millions of small businesses published monthly. It maximizes the features of Fiserv data with its timely released just 2 days after month end, a detailed look at trends by industry and geography and the inclusion of noncard spending data such as cash and checks.

We're also working to support clients in their AI journeys as they invest to process and understand their own data. Clients are recognizing that we can efficiently add Fiserv data and intelligence to help take decision-making to the next level.

It's a major value-added solution that we're already testing with several of our largest clients and on the Clover platform. We're still in the early stages of delivering our data and intelligence solutions, but the opportunity is significant given the power of our integrated platforms and our unmatched scale, breadth and investment.

Finally, I'd like to thank our more than 40,000 employees for their steadfast commitment to our vision and hard work on the day-to-day execution. It's clearly led to our leadership in product and innovation and the strong results you're seeing us report today. Together, we strive to achieve excellence every day on behalf of our clients, partners and shareholders.

Thank you for your time today. And now operator, please open the line for questions.

[Operator]

[Operator Instructions] Our first question, we'll go to the line of David Togut from Evercore ISI.

[David Togut, analyst]

I appreciate the update on new product launches for Clover and also the vertical market expansion into services and retail. Could you update us on the international expansion in Brazil and Mexico? Frank, you called out some initiatives in Brazil. But in terms of the broader kind of new market launch kind of post friends and family, what are your expectations for the back half of this year and into 2025?

[Frank Bisignano, executive]

Yes. I think, first of all, when you look at what we're doing on global penetration, we have talked about Mexico, Australia and Brazil. You should expect Brazil and Mexico in August as a pilot. I would see it as a full ramp in 2025. I'll treat August like a friend and family.

But remember, our business in Brazil, the things we've done with the things we've done growing the business probably 8, 9 years ago from a startup into a tremendous competitor. So we have growth projections for that market that would expect it to perform as our business in Brazil.

Mexico. We've built the business there. We continue to grow that business. We feel Mexico and Brazil build is very similar. That's why you see them coming out together. Once again, a friends and family in August and obviously, you'll watch that build through the fourth quarter and then full effect in '25. We feel really great about our position in Australia and what we're going to do in Australia.

You'll see us in September and that as a friends and family, we have expectations of larger partner wins there also that are very, very highly motivated to have Clover in market in '25. So I don't think you'll get a ton of growth out of it this year.

We'll update you later in the year on our expectations again '25, but those bills are in full force. We have partners who wanted that, and we see the market demand for all of that. So thanks for that question.

David, we got on the call and talked about a celebration that we're really having right now, which is the 40th anniversary of Fiserv and the 5th anniversary of the merger. But I think what I realized when I got up this morning is we're actually celebrating your retirement from Evercore.

And if my information is right, because you know we have to count everything here, you covered Fiserv for 29 years and that's been 4 CEOs, I'm fortunate to stand on the shoulders of those who came before me, so I cherished that time together.

And then I think I'm right in 32 years on First Data, I can't really account for all the CEOs that came before me specifically post KKR, but thank you for everything you've done to the industry. Thank you for the work. And I think the celebration of your career and your retirement from Evercore. Thanks for being here with us today.

[David Togut, analyst]

Thank you so much, Frank, that really means a lot to me. I really enjoy working with you, Bob and Julie. And in the tradition of your predecessors, you continue to create tremendous shareholder value. So I'll continue to watch your progress with great interest.

[Robert Hau, executive]

Congratulations, David.

[Operator]

Next, we'll go to the line of Tien-Tsin Huang from JPMorgan.

[Tien-Tsin Huang, analyst]

I was going to say, I can't remember a First Data or Fiserv calls that didn't have David Togut on it. So yes, I echo that. My question for you guys, just on the margin outlook that was raised, can you just give us a little bit more specifics on the sources of the upside there?

And then just a clarification on the merchant processing side. Was that related to some bank losses? I heard a comment that there's some declines in the bank side. I just wanted to clarify if that was volume-specific or due to attrition?

[Robert Hau, executive]

Yes. Thanks, Tien-Tsin. First, on the margin outlook, as you heard in our prepared remarks, we raised our margin outlook actually for the second quarter in a row now greater than 135 basis points original guide back in February was greater than 100 basis points. That's really driven by 2 factors.

One is just the scale and volume of the company as we add more revenue, it drops through to the company average because we have better than company average rates and continue to see good growth. The second one, of course, is ongoing productivity. We continue on an ongoing basis.

As Frank said earlier, measure everything and we continue to see progress towards achieving increased productivity across the organization. And so the combination of very strong organic growth, 15% to 17% this year, plus productivity allows us to continue to expand margin on a multiple year basis.

And then on the merchant processing side, as you know, the processing business line for us is where our clients own the merchant contracts. And so we are providing the back-end process for those clients, in many cases, it's banks to be wholesale ISOs. And what we saw is some volume decline out of those processing contracts in the second quarter. Of course, on a year-to-date basis, we are up plus 1% for the first half of the year, and that's in line with our ongoing expectation that it's roughly flat in this business line going forward.

[Operator]

Next, we'll go to the line of Jason Kupferberg from Bank of America Merrill Lynch.

[Jason Kupferberg, analyst]

Great to see the ongoing revenue performance here. I was curious just to ask about some of the underlying metrics, small business volume growth, enterprise transaction growth. We did see some slowdown there in Q2, probably more than can likely be explained just by leap year. So I was hoping you could unpack those a little bit in terms of where you saw some of the softness, was it certain verticals or higher income versus lower income consumers? And then just anything you can give us on what you've seen in July so far we heard from Visa last night about a little bit of softness related to hurricane and CrowdStrike?

[Robert Hau, executive]

Yes, Jason. There's obviously lots of variables in both of those, both the small business and the enterprise business lines. Generally, we saw a bit of a slowing and in fact, through the second quarter, April and May were in line with our expectations.

July came in a little bit slower, but I would emphasize that, that was in line with our expectations. So it's partly why we're maintaining our full year organic growth rate at 15% to 17% and in fact, for the Merchant segment Holding it to 25% to 28% despite acceleration in easing of that transitory benefit down in Argentina.

So generally, the business is performing at or better than we had previously expected outside of that slowing in the transitory benefit, which, by the way, we think is a good thing for the Argentine economy, a more normalized growth rate and inflation and interest is good long term. And so we're encouraged by how that's going and how the overall business has responded.

[Frank Bisignano, executive]

Maybe I'd make a couple of other general macro comments. One, when you looked at -- we're very, very proud of what we believe we've created with the FSBI and our ability to track it. Obviously, we talked about how our numbers don't exactly mirror the FSBI because of our international presence and the fact that we had verticals that we think outperformed. We see slowness in July, but we see growth in July as we look at it right now, line was really Q2, if you look at it and slightly ahead of June.

I think also, as you look across our book and our total portfolio, you also see the slowing credit originations across outlook, which covers retail private label and general purpose. But all of this within our expectation range and I'd also make a secondary point around volume and revenue.

We are no longer a volume-only shop. We have lots of masks, both at the enterprise level and at the SMB level and it really was the design of how to proceed. We have great feeling about our ability to grow merchants globally, and that's inclusive of the U.S. So that all falls into our expectations set. And I think in total, when you look at the business performance and the portfolio size and scope, our hedge is very, very strong.

[Operator]

Next, we'll go to the line of Timothy Chiodo from UBS.

[Timothy Chiodo, analyst]

I want to hit on Cash Flow Central just given about to go live here, 6 large clients you mentioned. In terms of the monetization, I believe it's a combination of subscription fees and then also transaction fees, including some interchange revenue potentially. I was hoping you could break that down a little bit more? And then also talk a little bit about how the revenue will be recognized across the 2 segments?

[Frank Bisignano, executive]

Yes. Maybe I'll elevate it here, just so we have pure clarity on our SMB strategy here both with FIs and on our other direct channels. And we refer to it in our prior comments, but I want to be very, very clear. First of all, those wins are large institutional wins for the products in the market in that fashion and our pipeline is tremendously strong.

Remember, we're also going to bring this product to Clover and we're bringing the product to our ISV channels also. And then when we talk about is a -- as I like to call it, an SMB bundle, that SMB bundle will include Clover, Cash Flow Central, the ability to integrate that information, bring it XD, which is also winning heavily in the market right now as our new digital banking platform and So I think what you're going to buy and banks that buy love the bundle, right? Yes, they're buying Cash Flow Central, but this will be a long-term growth engine and you also heard us talk about our ability to go, yes, we have 900 financial institutions, we plan on continuing to grow that number.

So Cash Flow Central by itself is a standout product, which Bob will walk you through the economics and -- but I want you to focus on the SMB strategy that it's an integrated strategy. I think we're one of a kind in the ability to deliver digital banking, deliver card spend, deliver Clover and deliver something like cash flow essential ARAP to this SMB set.

Our banks are loving it. We've got 2 shots that are helping banks generate revenue through it. So I don't want to minimize the question without articulating the strategy, which is a long-term growth strategy for our total portfolio.

[Robert Hau, executive]

And Tim, I'd say, we feel very good about signing up 6 large banks before we've gone live. We're quite encouraged on the demand from those financial institutions and the excitement they have, as Frank points out, it's a revenue generator for them.

It allows them to bring themselves closer to their small business client, which is an important client base for them. and for us, the opposite of our consumer bill pay solution, which is a fee that the banks pay us but typically do not charge consumers, and so it's an expense item for Cash Flow Central, it's actually revenue generated both the likely charge their small business clients to subscription, again, generate revenue for themselves, and obviously, for us, as transactions flow, so feeling very good about the opportunity and very encouraged on the very, very

[Operator]

Next, we'll go to the line of Dave Koning from Baird.

[David Koning, analyst]

Nice job. And I guess my question, in the banking subunit, you grew 4% ex periodic revenue. That's the best we can see in the 6 quarters or so since you've given the new segment data. Is there something about the market that's getting better or something that you're doing more specifically? And is that -- is this higher level sustainable?

[Frank Bisignano, executive]

Yes. Maybe I'd cover that. I realize in my comments about business generation and demand, I didn't include that. We see a large demand for our services out of the financial institutions. And that's beyond this merchant and CFC capability, which both have tremendous demand.

It goes to XD, which is winning in the marketplace. You heard us talk about fintech wins. Our clients are growing and you look at things that we've done on Fintech with which has been a tremendous opportunity. I do think when you could point to recent surveys published that we've differentiated ourselves in the service area from where we might have been a couple of years ago with the delivery of a commitment tracker, which allows us and our clients have 100% synchronization on our commitments and our delivery rate.

I think those have really, really distinguished ourselves. Our relationship management model is making a difference and will continue. Demand is strong. So I think it's all those variables that gives us confidence about our ability to be the grower that we talked about back on

[Operator]

Next, we'll go to the line of Darrin Peller from Wolfe Research.

[Darrin Peller, analyst]

If we could just hone in and just give a little bit more of a broad update on the Financial Solutions segment, just given the strength we're seeing. Obviously, Cash Flow Central is strong and then you have Zelle and some other implementations. But help us understand the driving forces of that growth going from where it is today? And then I know you've talked about it accelerating again into like through '25 and into '26 at your Investor Day. Just is that still what you see happening and what are the major drivers affecting that?

[Robert Hau, executive]

Yes, Darrin. So our expectation or outlook for this year for the Financial Solutions segment is 4% to 6% -- excuse me, 5% to 7%. Year-to-date, we're at 6%. So we're right at the midpoint of that full year outlook.

We anticipate as we go into '25 and '26, our medium-term outlook for the Financial Solutions segment increases a point to 6% to 8%. So 5% to 7% this year, we're right at midpoint halfway through the year, and we expect that to accelerate into '25 and 2026. And that's really driven by the benefits of exactly what you called out, Cash Flow Central coming online; growth in XD, our digital banking solution; Finxact; and a broad suite of capabilities that we have continuing to take hold and meet the demands of our financial solutions of the client base.

We also have on the issuing side, as you heard us talk about back in November at the Investor Day several large client wins that will go live in 2025 and beyond, things like Verizon and Target and Desjardins, all giving us a lift. We feel quite good about where we are first half of the year and what we see going into '25 and '26.

[Operator]

Next, we'll go to the line of Dan Dolev from Mizuho Securities.

[Dan Dolev, analyst]

Frank and Bob, really nice results. I just wanted to go back to the more sort of like guidance in merchant and macro. I mean, pretty impressive results despite the, I'd say, more muted tone at Visa yesterday. So can you maybe provide just maybe like a little bridge in terms of what needs to happen for the guide or the fact that you maintained the guide for the year? Like is there anything -- is it idiosyncratic wins, et cetera, which is what we suspect or is there anything else in there? And again, congrats.

[Robert Hau, executive]

Yes. Thanks, Dan. So overall, maintaining our total company organic growth at 15% to 17% in order to do that, we expect the Merchant segment to grow 25% to 28% organically first half of the year. We're ahead of that slightly at the top end.

Good growth. Overall, we talked a little bit in our prepared remarks about the easing of the transitory benefit of inflation and interest. You see in our slides that, that number has come down. Our previous expectation for the full year was that, that would provide a 14-point benefit to Merchant Solutions, now 9-point benefit. And yet we're maintaining our full year outlook, and that's the strength of things like Clover is selling very well.

Value-added solutions, both in our small business and in our enterprise business. Commerce Hub continue to see good uptake from our large enterprise clients. We definitely saw an increase in anticipation activity done in Latin America that we talked about in our prepared remarks as well as an additional quarter benefit of So maybe a little bit of that idiosyncratic view from your point on the expect that to go away at the tail end of this coming this quarter, third quarter.

But generally, growth across the business. And I think this is one of the hallmarks of Fiserv over the 40 years that we've been in business, anticipating that 2024 will be our 39th consecutive year of double-digit EPS growth, we are incredibly resilient. We respond to changes in the marketplace. We respond changes in the macroeconomic environment, and it's the breadth and depth of our capability of our product set of our client base and our distribution channels.

[Operator]

Next, we'll go to the line of James Faucette from Morgan Stanley.

[James Faucette, analyst]

I want to go back to Clover and Clover growth. And one of the questions we get a lot is, you talked at your analyst meeting back in November about using Clover and how the back book could contribute a little bit more going forward to that growth. But I'm wondering if you can talk through a little bit the sales cycle there and where your existing customers see value on Clover and how you're feeling about that from a -- and maintaining those customers from a competitive standpoint if they are reevaluating solutions, et cetera?

[Frank Bisignano, executive]

Thank you. Thanks, Jim. Good to hear from you. I mean like we've been really, really feeling good about the Clover strategy and continuing to refine it. Obviously, we know there'll be a day where we're to come back and say we're headed directly into the back book, but we see so much front book activity opportunity between our international, between our ISV, between how we're thinking about the verticals, like services, like restaurants that we're continuing to build that product set that vast.

Obviously, it's an outperformer in attrition across the total book. And we have the benefit of looking at attrition rates from everything. We look it at from what ISO portfolios are trading versus how ISV portfolios are trading versus our agent versus our direct book. And we feel really, really good about how it's performed.

We're continuing to ramp up our investment in value-added services and vertical expertise there. So we've made a set of commitments 3, 5 and then 4, 5 and rates and we think about the merchant business being $10 billion and $12 billion, and all of that feels really, really tight on track.

Obviously, I always have to say we started Clover with 7 engineers and 3 patents and now we got a global franchise. So it's straight in our sights. Obviously, we have lots of other great things in our portfolio. But it also is the key to why we have 900 financial institutions.

And I would expect over a period of time on this journey that if you ask me, we haven't ever made a commitment or guided down angel institution, but you should expect us to continue to grow that at a double-digit number every year. So I don't know if that's helpful, Jim.

[Operator]

And for our final question, we'll go to the line of Ramsey El-Assal from Barclays.

[Ramsey El-Assal, analyst]

I wanted to ask about M&A. And I guess specifically, given the valuation multiples on the public company side seem to be much lower than on the private side, does that tilt the opportunity set for you guys more towards acquiring public peers, would you have an appetite to kind of move in that direction, Frank?

[Frank Bisignano, executive]

Yes, I don't -- it's not like I think about public private, I think about -- first of all, we have tried-to-true capital deployment philosophy, which I think we've been performing well at going to say, geez, I wish we had acquired more frequently and always say, but there's nothing that traded that I wish we acquired.

So I think I think it's about value, it's about long-term value creation. Remember, we have the best distribution with our financial institutions, our ISVs, our ability now to keep financial products and bring them to our merchants, we didn't really talk about embedded finance at all today, but that is still an engine that's moving for us.

So it's where is value creation, how do we bring it to our clients and our shareholders. And I'm really not thinking public versus private as much as being involved in looking at everything humanly possible. So that would be -- I think that's kind of where we are.

I'd like to thank everybody for their attention today. Obviously, we've got a great IR team, so reach out to them with any further questions, and have a great day, and I look forward to talking to you in the future.

[Operator]

Thank you all for participating in the Fiserv Second Quarter 2024 Earnings Conference Call. That concludes today's conference. Please disconnect at this time, and have a great rest of your day.