Fiserv Inc

NYSE:FI

Earnings Call Transcript 2021-Q3

[Operator]

Welcome to the Fiserv 2021 Third Quarter Earnings Conference Call. All participants will be in a listen-only mode until the Question-and-Answer session begins following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Shub Mukherjee, Senior Vice President of Investor Relations at Fiserv.

[Shub Mukherjee, Senior Vice President of Investor Relations]

Thank you and good morning. With me on the call today, Frank Bisignano, I'll fans. June can Chief Executive Officer and Bob Hau, how our Chief Financial Officer, Len East, release and supplement materials for the quarter are the vendor been on the investor relations section of sidestep.com, Please refer to these materials for the next [indiscernible] of the non-GAAP financial measures discussed in this call. Along with the reconciliations of those mentioned to the nearest applicable GAAP measure. Unless otherwise stated, performance references on [indiscernible] comparisons.

Our remarks today will include forward-looking statements to [Indiscernible]. Among other matters, expected operating and financial results, as strategic initiative. Forward-looking statements may differ materially through actual results and I'll structure to a number of risks and uncertainty. You should refer to our earnings release for a discussion of these risk factors. Before I turn the call it over to Frank, please note that going forward, we will be using the talent volcanic, constant currency, revenue. To replace intentions revenue. There is no change in how we calculate this measure, just to change in terminology. And now, over to Frank.

[Frank Bisignano, President and Chief Executive Officer]

Thank you, Shub. And thank you all for listening. And as we share our results for the quarter and highlight the progress against our growth agenda. As you know, we serve as the operating system for commerce and money movement across our client-base banks, Fintechs, and businesses, ranging from SMB s to mid-market to large enterprises. We help our clients grow by extending our platform to capture new services and new money flows. We're also seeing real benefits from the ongoing economic recovery, especially here in the U.S. We remain optimistic and continue to invest in growth.

Turning to our performance, we had a strong Third Quarter with total Company adjusted revenue up 10%. Adjusted operating margin expanded a 130 basis points to 34.2%. Adjusted EPS grew 23% to $1.47. We attained our highest quarter of action and revenue synergies of 95 million. To date, we have achieved 420 million of actions revenue synergies. 70% of the increase commanded of 600 million for the five-year period following the merger. As we invested to accelerate growth, free cash flow came in at 572 million for the quarter and 2.3 billion year-to-date.

Free cash flow was driven by a combination of the following. First, increased capital expenditure in the areas of technology innovation hubs and the integration of newly acquired capabilities. Second, the working capital increase driven by revenue growth. And finally, reduced benefit of net operating loss carries forwards. On the back of our results and the strength of our investments, we are tightening our outlook for organic revenue growth and raising the lower end of our outlook for adjusted EPS. We now expect organic constant currency growth of 11% for the full year. and adjusted earnings per share between $5.55 and $5.60. This raises the lower end of our prior adjusted earnings per share outlook by $0.05.

A growth of 26% to 27% over last year. Turning to the business segments, let me start with merchant acceptance. We continue to grow beyond the buy button by investing in world-class Omnichannel capabilities. Solutioning, around vertical and horizontal business needs in capturing new floats. We achieve all of this, throughout three growth platforms. Clover for small business, Clover Connect for ISV, and Carat for enterprises. Driving in job performance, merchant acceptance led the quarter, posting organic revenue growth of 18% year-over-year with North America and International, largely in line with the segment average for the quarter. Our global merchant locations have been growing at a healthy clip, up 10% in the quarter on a year-over-year basis, driven by positive net new merchants across all regions.

The quarter was driven by growth in global volume and transactions of 15%, and 12% respectively. North America volume and transactions grew 14% and 9% respectively, led by strength in travel, restaurants, and petrol. Excluding the impact of the loss of a large processing through one of our GEDs, North America volume and transaction growth in the quarter would have been 19% and 14% respectively. Next, let's go deeper by platform, starting with Clover. GPV grew 47% year-over-year, or a 39% CAGR since 2019 to $196 billion on an annualized basis. In the SMB space, we remain focused in building vertical-specific solutions, offering an integrated suite of products that help merchants generate revenue and run their business.

As part of our vertical strategy, we entered into an agreement to acquire BentoBox as digital marketing in commerce platform, focused on driving growth in engagement per restaurants. This transaction will expand out Clover Dining Solutions and industry-leading commerce and business management capabilities, which are ready and able nearly 200 thousand restaurants of all sizes to deliver unique and differentiated dining experience from quick and casual, to fine dining. We expect the acquisition to close in the Fourth Quarter, subject to regulatory approval and customary closing conditions.

Conditionally, we continue to focus on building value added services for the Clover platform, including Clover Capital, Clover Dining, Clover Order Ahead and Clover Inventory, as well as unique Clover App Marketplace. On the enterprise side, Carat, enterprise Omnichannel platform continued its strong momentum in the Third Quarter with new wins, product innovation, and a gradual recovery in cross-border commerce. Global E-commerce volume grew unabated in the quarter, driven by cross-border and international growth of 25%, on a year-over-year basis as volumes recovered from the pandemic lows with secular tailwinds expected to sustained future momentum. Omnichannel transactions such as order-ahead and buy online, pickup in store grew 35% in the quarter.

We had notable e-commerce wins in the quarter, including Johnson & Johnson and Caesars Entertainment. We also expanded our existing global acquiring relationship with Microsoft to be their provider for network tokens. In the quarter, we added PayPal and Venmo as digital wallet payout options to our global [Indiscernible] surface platform submitting Carat as a leader in digital payouts with over 10 billion processed year-to-date. An increase of 230% on year-over-year basis. Traditionally, we're building new partnership with Bakkt, a leading crypto and consumer wallet solution provider. Bakkt will utilize Fiserv's industry-leading funds in funds out solution. And together Fiserv and Bakkt was developed new crypto use cases for both merchant and FI clients. Moving to Clover Connect, the strength of our ISV focused offering show a 3/3 quarter was ISD volume of 71% year-over-year.

Clover Connect allows us to bring, to generate two strong Fiserv assets. The world-class hardware, software platform or accrual Clover, along with the best-in-class partner management and operational tool of co-pilot, which gives ISVs a unique view into all of the merchant’s activities, ranging from merchant application processing to support our commitment to being the best partner for ISVs is resonating. We signed 47 new ISVs in the Third Quarter, bringing out total wins to a 142 year-to-date.

We continue signing up ISVs better than new to payments and winning against the competition. This quarter, more than half of our wins were competitive takeaways. Before I address our international progress, I'd like to highlight another focus area in our merchant business, point-of-sale ending. We are leveraging our position as the operating platform for businesses, small, medium or large, to offer a range of buying out pay later options. We are expanding our referral relationships while simplifying the merchant experience through integrations without platforms like Clover. We currently have [indiscernible] agreements with [Indiscernible] Citizens Pay and [indiscernible] We are also working with our FI clients to bring their BNPL offerings to market.

For example, we are partnering with Synchrony to offer buy now, pay later solutions on our card processing platform office. Synchrony also recently announced acceptance of private-label cars through Clover. On our Investor Day, we talked to you about how merchant acceptance growth strategy for international. We remain focused on growing our global market presence with world-class bank partners and throughout direct channels. All while leveraging the strength of common platforms and connections. The global expansion of Clover platform into APAC, Latin America, and EMEA are all currently in flight. We're on a track to roll out Clover in India by the Third Quarter of 2022. A tremendous opportunity, given the size and growth potential of the market.

Clover is already in market in Argentina, as expected to launch in Brazil next year, thereby covering the two largest markets in Latin America. In EMEA, Clover is end market across the UK, Germany, and Netherlands, and Ireland, with a further boost expected with the rollout of the Deutsche Bank JB, that we announced last quarter. Among the key APAC yields completed in the quarter, is an omnichannel merchant acquire processing mandate from Bank of China for their fast-growing Macao market. Moving to EMEA, Fiserv partnered with Hoist Finance, one of the largest financial institutions in Switzerland, to provide credit card acquiring services to their Swiss merchant clients. We're starting with initial 4000 merchants that except the post finance cards today.

With plans to expand to the time merchant base of 60 thousand overtime. Fiserv is also supporting restaurant brands, owner of iconic brands including Burger King and Popeye. As the Company expands its footprint across Europe when an omnichannel approached. Fiserv will provide acquiring services for Burger King in the UK and the Nordics, and Popeyes in the UK. To close on the merchant segment, as you may recall, in April, we wanted 20-year deal to become the exclusive provider of merchant acquiring services for Catia Economical Federal, one of the largest Brazilian banks.

We're pleased to report that, the implementation of this mandate started at the beginning of August, and it's going extremely well with 65 thousand merchants onboarded as of last week. Moving into the payments and network segment, organic revenue grew 6% in the quarter, resulting in year-to-date growth of 5%. Out payments segment consists of three businesses, global credit processing and output solutions, which we call Issuer Solutions, which is 40% of the segment, debit processing and debit networks, which we call referred to as card services, also, and if their business is comprised of digital solutions, bill pay, and our prepaid business.

Our issues -- Issuer Solutions business, which grew just below the overall payments segment average is seeing the benefit of a continued credit recovery, with general-purpose credit gross active accounts up in the high single-digits. Note, that our credit issuer solutions revenue is driven by number of accounts, not credit volume. However, as credit volumes recover, the number of counts will follow. Looking ahead, we expect growth in the business to be driven by the continued ramp of last year's notable wins, including 3 of the top 25 issuer wins, which we announced last year.

We also recently completed GNC's conversion of BBVA's card portfolios through our platform. Our retail private-label portfolio also continues to recover from its COVID loads, although at a slower pace than we anticipated at the beginning of the year. Within card services which grew organic revenue, a couple of points faster than the overall payments segment average, we saw our strong growth in debit transactions driving out issuance and network businesses. Looking ahead, we expect to sustain growth for this business by [indiscernible] of total addressable market. For instance, in the quarter, our STAR debit network signed an agreement with leading U.S. consumer Fintechs chime to become its preferred-on affiliate network for Debit.

We believe that aligning one of our largest VINtek issuance is a testimony to scale and technical capabilities of the Silver Network and positions the network well for future growth. This was also one of our notable action synergy revenues in the quarter. During our Investor Day, we discussed the opportunity to offer a fully managed by Fiserv credit card issuing option to community FIs and shared that we were actively exploring this market. We're pleased to announce that, we are currently piloting out 18 Credit program offering, branded credit shorts and we'll launch in Q1 2022. Credit Choice is a fully managed credit card issuing as-a-service solution that allows [indiscernible] to offer their customers an FI branded credit card experience that is fully integrated into their Debit Solution, but without the operational burden of running their own credit card portfolio.

Credit Choice leverages out scale distribution and world-class card issuing surround solutions, such as Ondot and SpendLabs, to expand into a sizable new addressable market for Fiserv, where the economics per card are considerably richer than in processing. We have already seen strong early interest from clients with hundreds of prospects in the pipeline. On Q2 call, we spoke to you about our rich mobile-first consumer and business offerings powered by recent acquisitions, on that and spend labs. The early results of the launch have been very encouraging. We completed the integration of the card hub platform into our credit and debit processing platforms, and into our mobility mobile banking platform.

We are seeing tremendous demand for this integrated solution. from both new prospects, as well as existing CardValet clients whom we expect to fully migrate to the integrated card hub solution by the end of 2022. In addition, we expect to expand the platform to add loyalty, installment payment, and dispute management, thereby establishing card hub as a key differentiator to drive new sales and client retention. For our financial institution clients, this solution is a game changer. It enhances consumer engagement with their digital banking platform, creates more fee income through greater card usage, and catapults the FIs overall digital experience into the leagues of some of the world's top banks and neo banks [indiscernible] business, results are mixed.

We had good growth in our digital payment’s activity led by Zelle transaction growth of 75% in the quarter, and the number of clients live now reaching just under 750.. Prepaid growth was driven by new client wins within our solutions business. We expect growth to continue driven by new use basis. Our bill pay business, which encompasses both the direct biller and bill pay throughout financial institutions, continues to grow slower than expected. However, we are extending our bill pay capabilities beyond the financial institution channel going live later this month as an enabler of PayPal's fill payment functionality within PayPal's new acts.

Additionally, we expanded our relationship with a large telecom provider to enable commercial card payments with our BillMatrix solution. Moving to the financial technology segment, the quarter was in line with our expectations, posting organic revenue growth of 4% resulting in 4% growth year-to-date. We added 14 new core account processing clients in the quarter, including seven competitive takeaways and two de novo wins. Our VNA platform is seeing great success, including what larger financial institutions as evidenced. In the Valley National Bank, in dollar bank wins, with assets over 40 billion and 10 billion respectively. Ability, our modern cloud-based API driven digital banking platform is seeing great momentum with 150 incremental sales in the quarter.

138 of these sales were the existing clients, which would drive our client's digital transformation and deepen the penetration of our fully integrated digital surrounds, such as Card Hub, Zelle, and SpendLabs. The remaining 12 where new logo sales would have been core competitive takeaways. We also continue to enrich our open banking and Fintech ecosystem. Again, in line with the goals laid out in last year's Investor Conference, we launched our new developed a portal, which we call, the Fiserv Developer Studio towards the end of the Third Quarter. The Developer Studio provides rich and expansive API integrations to support banks, Fintechs, merchants, and enterprise clients with developer tools needed to accelerate innovation, integrations across the entire Fiserv ecosystem.

Additionally, we also announced partnerships would exciting new Fintechs, FutureFuel.io, and StreetShares, and then creating new whitespace opportunities in digital for both retail consumer, and small business lending respectively. We believe that we're extremely well-positioned to continue to drive revenue in a segment higher by delivering new innovation, such as the ability, strategically acquiring and integrating attractive surround solutions like Ondot and SpendLabs, and leveraging the power of the developer community throughout developer’s studio API portal, or getting heated, go-to-market integrations FutureFuel.io, and StreetShares. Now let me pass the discussion to Bob (ph), for more detail on our financial results.

[Bob Hau, Chief Financial Officer]

Thank you Frank (ph), and good morning, everyone. Before I begin reviewing the detailed business results that Shub mentioned, we are aligning with the broader community and simplifying our message by clarifying your future revenue growth metric as organic constant currency revenue. This does not change how we tucked away this measure, just clarifies the terminology. You will be the same definition and calculations we've used in prior quarters. On slide 11, we've included a new schedule to clearly provided an understanding of the walk from GAAP revenue to internal or organic revenue for the Third Quarter. This summary could be seen in more detail in the appendix of our presentation.

Now I will cover some detail on each of our segments. If you're following along in our slides, I'm starting with Slide 4. We feel great about our performance for both the quarter and the first nine months of the year. And we are well-positioned to achieve strong, full-year financial results. Total Company organic revenue was up 10% in the quarter, with growth across all segments led by merchant acceptance segment, which grew 18%. Year-to-date, total Company organic revenue grew 11%, also led by the merchant acceptance segment, which grew 21%. Total Company adjusted revenue also grew 10% to nearly $4 billion in the quarter. Year-to-date, total Company adjusted revenue has grown 11% to $11.4 billion.

Third Quarter adjusted operating income was up a strong 15% to $1.4 billion and adjusted operating margin increased by 130 basis points to 34.2%. This margin improvement was driven by our strong revenue results and our continued disciplined capital [Indiscernible] disciplined cost synergy execution, which produced $64 million of incremental cost synergies during the quarter. And we have now had actioned $1.16 billion program today. Year-to-date adjusted operating income increased 23% to $3.8 billion. Adjusted operating margin year-to-date expanded 330 basis points to 33.2%. Our Third Quarter adjusted earnings per share increased, 23% to $1.47 compared to $1.20 in the prior year.

Through September 30th, adjusted earnings per share grew 29% to $4.01, putting us on pace to achieve our 36th consecutive year of double-digit adjusted earnings per share growth. A testament to the incredible strength and resiliency of this Company. Free cash flow for the first 9 months of the year was $2.3 billion, resulting in an 85% free cash flow conversion. This result was driven by increased investment capital investments related to technology, world-class facilities in the integration of newly acquired businesses, working capital increase driven by revenue growth, and a reduction in the net operating loss carryforward benefit. With these investments and strong revenue growth, we now expect free cash flow conversion to be 95 to 100% for the full year.

Now looking to our segment results starting on slide six, organic revenue growth in the merchant acceptance segment was a very strong 18% in the quarter, and 21% year-to-date. Our revenue was driven by a combination of growth and volume and transactions. Our results were once again driven by strong performance across all three platforms Clover for SMBs, Carat for large businesses, and Clover Connect for ISVs. Clover continues to build upon the momentum and strength of our product offering, as opposed to a very strong 47% GPV growth year-over-year, or $196 billion on an annualized basis, with growth across all of our distribution channels.

With Carat, we won 45 new global enterprise e-commerce clients on the platform in the quarter. In addition, Carat expanded mandate with existing high-quality brands, such as Valero, continuing to lead in the high-growth online EBT space turn HD launched more than 50 clients our online PVT in the past 12 months. Our ISV volume in this quarter to Clover Connect grew 71% year-over-year up almost 150% versus the Third Quarter of 2019. We are leaning both ISVs that our [Indiscernible] payments, as well as competitive takeaways. Adjusted operating income in acceptance segment increased 30% to $552 million in the quarter.

And adjusted operating margin was up 300 basis points to 32.2% driven by top line strength. Through September 30th, adjusted operating income improved 57% to $1.5 billion and adjusted operating margin grew 710 basis points to 30.6%. Turning to slide seven, the payments and network segment posted organic revenue growth of 6% in the quarter, resulting in year-to-date growth of 5%. As Frank outlined, and the composition of the segment, our card services, digital payments, and prepaid businesses outperformed the segment. organic revenue growth rate. Global Issuer Solutions came in just under the segment average, while bill pay was a headwind. Account-to-account transfers in P2P solutions continue to rise with consumer demand. Zelle transactions in the quarter were up 75% and the number of clients live on Zelle was up 65% in the quarter.

[Indiscernible] transactions grew 11% in the quarter, a strong result in light of the tougher year-over-year comparisons in the third quarter versus the second quarter, driven by the macro impact of the reduced benefits of the stimulus. Given the performance year-to-date, we expect to see the payments and network segments full-year organic revenue rate to be within the medium-term outlook growth rate of 5% to 8%, driven by the continued ramp in new client on-boarding and strong uptake of our advanced digital offering. However, this outlook is slightly [indiscernible] versus our previous expectation of approaching the higher-end of 5% to 8% organic revenue growth target range.

Adjusted operating income for the segment was up 7% to $650 million, and adjusted operating margin was up 50 basis points to 44.0% in the quarter. Year-to-date, adjusted operating income was up 7% to $1.9 billion, and adjusted operating margin was up 110 basis points to 43.4%. The results were driven by positive momentum in our card in Issuer business. And the positive impact of revenue in cost synergies. Turning to slide eight, the financial technology segment organic revenue grew at 4% in the quarter. Year-to-date, organic revenue growth for the segment is 4% within our interim outlook for this segment of 4% to 6%. Our digital banking capabilities in digital solution offerings continue to win in the marketplace.

As Frank mentioned, we added 14 new core account processing clients in the quarter, half of which were competitive takeaways. We completed our integration of on-dock card management capabilities into our mobility mobile banking platform and are currently in market with that offering. Mobile deposits in Q3 grew 10.5% over the prior year, while self-service ATM deposits grew nearly 60% over last year. Adjusted operating income was up 4% in the quarter to $275 million and up 10% year-to-date to $794 million. Adjusted operating margin in the segment decreased 40 basis points in the quarter to 36%. However, on a two-year basis, adjusted operating margin has increased 560 basis points versus the third quarter of 2019.

Adjusted operating margins expanded 190 basis points to 35.3% year-to-date. The adjusted corporate operating loss was $121 million in the quarter in line with last year, the adjusted effective tax rate in the quarter was 20.3%, improving 260 basis points versus prior year. And we now expect our full-year adjusted effective tax rate to be about 20%. During the quarter, we continued our disciplined capital allocation strategy by repurchasing over 3 million shares for $365 million. We have more than 52 million shares remaining authorized for share repurchase.

As Frank mentioned earlier this month, we entered into an agreement to acquire ventral box, a digital marketing and e-commerce platform focused on driving growth and engagement for restaurants that we will need to bring into Clover's Dining Solutions to further strengthen our Omnichannel restaurant platform. We expect to close this transaction later this quarter. Total debt outstanding was $21 billion on September 30th, and the debt-to-adjusted EBITDA ratio decreased to 32 to 3.2 times. Q3 was another demonstration of our time-tested capital allocation strategy, which includes maintaining a strong balance sheet, making organic investments, innovative solutions, and pursuing high-value acquisitions. With that, let me turn the call back to Frank.

[Frank Bisignano, President and Chief Executive Officer]

Thanks, Bob. I'm very proud of the results we've accomplished, with another quarter of double-digit adjusted revenue growth and double-digit adjusted EPS growth. In addition to delivering on our financial results, we continue to focus on our associates and our communities. In July, Fiserv goes name it, Disability Equality Index 2021, Best Places to Work. And in September, received the Silver Torch Award from the National Black MBA Association as Partner of the Year, recognizing our commitment to putting diversity at the forefront of our values and talent, and client engagement strategies. During the quarter, we also entered into a multi-year relation -- into multi-year relationships with apparel scallops USA, and the Russell Innovation Center for entrepreneurship.

These partnerships focused on increasing access and opportunity for aspiring women. and minorities within the entrepreneurial ecosystem. We also expanded our back-to-business program to Detroit, and the Washington, D.C., Maryland, Virginia area, as well as internationally with our entry into the UK. Additionally, during the quarter, we also completed our CDP submission and for the first time published our EEO-1 filing on our internet site. None of these achievements would have been possible without our world-class talent. I thank our more than 40 thousand associates around the world for their commitment encouraged as we stand together to deliver value for clients, our colleagues and you, our shareholders. With that Operator, please open the lines for questions.

[Operator]

Thank you. We would now like to open the phone lines for questions. If you would like to ask a question, you may press star then 1 on your phone. If you would like to withdraw your question, you may press star then two. Our first question comes from Tien-Tsin Huang from J.P. Morgan. Please go ahead.

[Tien Tsin Huang, J.P. Morgan]

Thanks so much. Good morning. I wanted to ask on acceptance. I'll ask some acceptance. Looks like you outperformed global Visa volume. If I'm looking at this correctly, but the yields turn negative in the third quarter, and it was positive last quarter. So just a question here on pricing and mix in general for acceptance, and what the outlook on yields might be here going into the fourth quarter. Thanks.

[Bob Hau, Chief Financial Officer]

That's a [Indiscernible], Bob, good morning. I would attribute largely that variation to the difference between volume and trans of our mix relative to what you might see in Visa, as well as the yield, ever so slightly that ebbs and flows within the quarter depending on the mix of SMB versus enterprises. Overall, we feel quite good about the overall performance, how we're performing against the overall market and against our peers.

[Tien Tsin Huang, J.P. Morgan]

Got you. So more mix than pricing. Thank you.

[Bob Hau, Chief Financial Officer]

Yes.

[Operator]

Thank you. Our next question comes from Lisa Ellis from MoffettNathanson. Please go ahead.

[Lisa Ellis, MoffettNathanson]

Terrific. Thank you. I think I'll follow up on [indiscernible] question and specifically ask about the large processing clients roll-off that you highlighted that looks like it's about a 5-point drag on overall volumes in merchant acceptance and a larger drag on e-com. Can you just elaborate a little bit on that situation and specifically, how should we think about how it's affecting revenues, like if it's a low yielding client and then also is that something now that will take another three quarters before it lapsed or just any additional detail, there would be helpful. Thank you.

[Bob Hau, Chief Financial Officer]

Yeah, Lisa, good morning. The way to think about this, this is a large client that we process through a joint venture. We pointed it out in terms of adjusting our volume and transactions for transparency. It has very little impact overall on the actual revenue and the revenue numbers you see there are as reported. So including that decline that client is largely off our platform at this point. And so you will see it from a year-over-year standpoint but there's no more decline going forward because there is actually off our platform at the end of third quarter.

[Lisa Ellis, MoffettNathanson]

Terrific. Thank you. Thanks for the clarification.

[Operator]

Thank you. Our next question comes from David Koning from Baird, please go ahead.

[David Koning, Baird]

Hey guys, nice job. I guess first of all, just in acceptance, I think last quarter, you even mentioned Q4 being up sequentially from Q3. I guess, is that still the case? And maybe as I look back on some of the more normal years, it seemed like you'd grow a few percent sequentially in Q4, just wondering, anything in Q3 or Q4 that would Disrupt that kind of normal few percent up sequentially pattern.

[Bob Hau, Chief Financial Officer]

So you're talking above growth, quarter-to-quarter sequentially?

[David Koning, Baird]

Yeah, just sequential revenue growth in acceptance. It looks like a few percent up is kind of normal in Q4.

[Bob Hau, Chief Financial Officer]

Yes, David. I think it's tough to call anything normal these days. I would expect our fourth quarter to be roughly in line with third quarter sequentially for this year.

[David Koning, Baird]

Okay. Okay. Cool. And then I guess secondly, just payments. I know you kind of called out how it's going to be within the range you'd said for maybe at the upper end of the range, is some of that anything that's falling into 2022 now, but were there any delays in implementations or anything there that just makes 22, now a little better than it previously would've been?

[Bob Hau, Chief Financial Officer]

I wouldn't call it any delays per se, but we highlighted a few growth drivers that will see into 2022. A couple of the new wins, PayPal going live, we signed a new large U.S. telecom that will go live soon. And of course, the announcement of credit choice will help us as we launched that program. As Frank pointed out, we're now in pilot. We're seeing very strong demand for that program, for something that we had not formally announced yet. So we're just now announcing that, we have some good early read on that. And of course, we'll have card hub the offering that we acquired through Ondot are for full-year next year, and that is now fully integrated into our mobility platform, and we continue to build out that capability.

[Frank Bisignano, President and Chief Executive Officer]

We also have those three of the top 25 issuers that are beginning on-boarding. So that will be within the numbers next year. And you heard us talk about us converting BBVA on towel platform also for our client PNC. You're going to continue to get the Zelle ramp in there also as that continues to grow, and we onboard more. I think the Zelle will factor into next year's next year's numbers.

[David Koning, Baird]

Sounds great. Thanks, guys. Nice job.

[Frank Bisignano, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. Next we have James Faucette from Morgan Stanley. Please go ahead.

[James Faucette, Morgan Stanley]

Thanks very much. I wanted to ask a little bit more of a strategic question. I appreciate all the color on near-term trends and the answers that you're getting from new customer wins. But Frank, it seems like you have picked up a little bit the pace of acquisitions, at least the announced ones recently. Can you talk about how you're feeling about potential and importance of doing acquisitions as part of your FIS or as part of your overall strategy, if that's evolving at all? And I guess tied to that, Bob highlighted the balanced capital allocation, but I'm wondering if it makes sense to accelerate debt pay down a little bit to improve optionality in case bigger deals come along. Thanks a lot.

[Frank Bisignano, President and Chief Executive Officer]

Well, maybe, maybe I will talk about what we've been doing on M&A and how we're looking at M&A. And I think the first thing is whether it's M&A or building out businesses, we're investing organically and inorganically. And I think the thing that hopefully you see is our agility, speed, and innovations. We talked about on that, And it's fully integrated beyond its initial capability. And now in our mobile product in winning in the market. You'll see us go and look at BentoBox and we're extending our total addressable market. With the capability that will start with restaurants, but actually can be a store front in much larger.

But all of these are nurturing, good, strong startups that then will allow to thrive in our environment, and we put the capital behind them to integrate them and grow. And you hear how it brings spend labs along with it. So I think you should expect us to continue that and realize that I think we believe we have a deep skill set in integrating properties, transforming our property itself. In some cases is, we're even disrupting ourselves in the process, as we move from CardValet to CardHub to an integration. So you should expect us to continue to do that and be very, very thoughtful about acquisitions, but we will invest inorganically, and we will invest organically -- and we will invest organically in the acquisitions to allow them to drive what then our ecosystem and not to be standalone entities.

[Bob Hau, Chief Financial Officer]

And then James, as far as paying down debt, we've seen a significant reduction or improvement in our leverage now at 3.2 times back when we completed the merger, we were just over four times. We continue to generate good free cash flow. And as you may recall, back at our Investor Day last December, we talked about the capital to deploy over the next five years, of more than $30 billion as we entered 2022, not only will we have very strong cash flow, but we will also have capacity on the balance sheet as EBITDA grows, the Company will quote naturally de -lever. And so we will have the capability to borrow just to maintain that historic leverage ratio. So feel like we're in very good position to be able to complete acquisitions. We feel we want to complete its not prohibited or constrained by capital.

[James Faucette, Morgan Stanley]

That's great color and context. Thanks, Frank. Thanks, Bob.

[Bob Hau, Chief Financial Officer]

Sure.

[Operator]

Next we have Jason Kupferberg from Bank of America. Please go ahead.

[Jason Kupferberg, Bank of America]

Thanks, guys. Good morning. Just wanted to start with a follow-up on the large processing clients that is coming out of the numbers yet. I guess it looks like it's an e-comm client just based on how much it impacted the e-com volume numbers specifically. Was this just a competitive situation that was becoming too price intense from your guy's perspective? I just wanted to get a little bit more color because it's fairly sizable, it appears.

[Frank Bisignano, President and Chief Executive Officer]

Yeah let's go first that volume coming off our system is in our revenue number. So hold that thought, right? so when you look at a large processing client off a JV, that's exactly what it sounds like, which is, first of all they -- this was long telegraphed by the client. But when we always talked about business, we knew the RPT on this and never saw it as an epic real economic impact, really just a volume impact to our business. And they went in-house. It wasn't a competitive takeaway, and it was part of their strategy, we were happy to support them. Without processing capability, Throughout [indiscernible] the period of that time that would get it.

[Jason Kupferberg, Bank of America]

Okay, thank you for that. Just on the free cash flow conversion, I just wanted to hone in on what were the most significant changes in your expectations versus last quarter because I mean, at the end of the day, I know on a quarterly basis, obviously, working capital can move around, but the full-year revenue is coming in, right in line with your plan. Presumably the diminished benefit of the NOL would have been known previously. So was this really just a function of kind of higher CapEx than you anticipated at the end of the day versus what you were thinking last quarter?

[Bob Hau, Chief Financial Officer]

Yes, Jason. The way to think about it is, our 11% revenue outlook [indiscernible] at the high end of our original outlook was 7% to 12%. So we're growing quite a bit faster than we originally expected overall. We are also seeing meaningful opportunities to invest for growth as of to your playing CapEx is higher. In terms of spending on creating new capabilities, new products, and services, as well as integrating the acquisitions that we announced earlier in the year. Things like Ondot, the software development that we're investing there to not only integrate into our capable -- on our existing capabilities, our other products and services, but to create new capability with some of those acquisitions, led us to make the decision to continue to invest in growth and still have very good free cash flow in good cash conversion overall.

[Jason Kupferberg, Bank of America]

Yes. Doesn't sound like kind of [Indiscernible]. Thank you.

[Operator]

Thank you. Next we have Ramsey El-Assal from Barclays. Please go ahead.

[Ramsey El Assal]

Thanks for taking my question today. Frank, I wanted to ask you a kind of a broader question. It seems to be some debate or discussion among investors about potential Fintech disruptive forces in the marketplace. The same time it seems like you guys’ function as somewhat of an infrastructure or enablement layer for Fintechs. I mean, even from the call today, you talked about Chime and Bakkt and PayPal and I know there's a slew of others. So can you talk about this tension between Fintech as a competitor and a potential disruptor versus Fintech is just sort of a high-growth distribution channel for the business.

[Frank Bisignano, President and Chief Executive Officer]

Yes. I mean, I think that's a long-term issue really back in times, right? We're a platform, as we like to say, for everything from Fintechs to SMB, the large enterprises. And if you think about what we did with Clover that was open up a community, into the development community so we can be a platform for them, and then a platform for end-users. So my view and our view are we're happy to do things to disrupt ourselves. I'd like to see us doing with the spend labs beyond dots and even Clover was a disruptor of that ourselves. We'll continue to use our platform to enable and ultimately, we want to serve all communities. So, if you think about things we've talked about here, Chime previously, Nidec, Bakkt, being an enabler and one about clients claim base, you think about us bringing PayPal into the bill payment ecosystem.

We're going to use outlet more joinable, and then we're going to compete heavily with outflow capabilities. So our traditional clients who will get all the capabilities and continued innovation, and we will also enable those that have the capabilities that we believe our clients would use. When you think about all of that she hears us talk about, being a token provider from Microsoft. That's about bringing their authorization rates higher. So, I don't really find any conflict here. We have waterfront property; we open up the waterfront property and our job are to enable enabled commerce and we get paid for enabling commerce.

[Ramsey El Assal]

That makes a lot of sense. I appreciate your answers there. Thank you.

[Operator]

Next we have Darrin Peller from Wolfe Research. Please go ahead.

[Darrin Peller, Wolfe Research]

Hey, thanks, guys. I want to [Indiscernible] on Clover because I know there's been a lot of discussion on what that asset could mean for you. So help us understand any more metrics you think make sense on the success of that asset. Obviously, it's continuing to grow well. But any other metrics in terms of how big the revenue is from that. Now, what kind of growth you anticipate, maybe any kind of profitability volume? And then, also is there an opportunity given to some disruption or year-end about in the market around Chinese competitor having some challenges on their terminals in the market? Now, I think they have million -- three million or so terminals that might be a challenge now, because there'd be a replacement opportunity for Clover on that.

[Bob Hau, Chief Financial Officer]

Darrin, its overall obviously, we are quite pleased with the progress in the continued growth prospects of Clover GPV up 46%, just under $200 billion for third quarter. Annualized basis, we continue to invest in new capabilities and expand our reach there as you know, large proportion -- about 90% of that volume is new to Fiserv, and so that is certainly a growth driver for the Company overall. And continue to expect that going forward. We're adding capabilities, BentoBox as a great example, is building out some of the verticals across that capability. We have significant strong Distribution channels.

And with the dissolution of the BAMS joint venture, we have a good and very quickly growing direct channel that we didn't see us have a few years back, and so we continue to see good opportunity there. And in terms of the terminal dynamic, we have obviously we have our own Clover devices. We also use other terminals for the other parts of our Company. And we have a variety of different providers of those terminals and go disruption to us at this point.

[Frank Bisignano, President and Chief Executive Officer]

Yeah. I would just add. Clover is a platform of choice. Yeah. Heard about the international expansion of that and I'll let think that as people are making choices going forward would disruption, for others that will just further accelerate our growth.

[Darrin Peller, Wolfe Research]

Yeah, we think that could be an opportunity for you to take a lot of shares in the U.S., at least with what's going on there. Quick follow-up is just on the cash flow and capital deployment. Just given what normalized earnings could be, how strongly or would you consider a more material accelerated share buyback by any chance, just given you now, you probably will be at about that 2.8 turns. Average target. good call at the end of the year. Thanks, guys.

[Bob Hau, Chief Financial Officer]

Yes, Darrin. I think, the way we think about capital deployment has been and remains quite consistent and quite a balanced. We continue to focus on growing the business organically, doing value accretive, inorganic growth, i.e. acquisitions. And then obviously always looking to return cash to shareholders where appropriate. I don't think you had anticipated us doing a large buyback, as you know, we're essentially in the market every quarter and have been for years short of the short period of time between announcing in closing our merger back in 2019 and will continue to be a disciplined capital allocator.

[Darrin Peller, Wolfe Research]

Thanks, guys.

[Operator]

Thank you. Our next question comes from Timothy Chiodo from Credit Suisse, please go ahead.

[Timothy Chiodo, Credit Suisse]

Thank you for taking the question. I wanted to get a little bit more with two mix-related questions on Clover. These are sort of alluded to in the last question, but hopefully we can get some of the mix percentages. So first would be around the portions of revenue, so large portion would be payments related, but also you highlighted at the Investor Day some increasing software attach. The strength in value-added services, and then also, clearly there's the hardware components. So even if you could just give sort of rough breakdown of those components and then the second part is around mix in distribution. So you alluded to some of the various channels, whether it'd be direct and bank partners, retail ISO, wholesale ISO, even just broad strokes on the mix of distribution would be really helpful.

[Bob Hau, Chief Financial Officer]

Yeah, Tim, so, a couple of things to think about there. One, in terms of channel, we are seeing rod growth across all of our channels, whether. Great, it's through partners, through ISV, ISOs, through obviously our joint ventures, as well as as I mentioned in the previous question, building out our direct channel, we have had and continue to be focused on having a very wide breadth of distribution capabilities and continue to focus on winning in all of those channels and that remains -- has been and will continue to be a broad focus of ours. In terms of breakdown of revenue, we haven't given detail around the mix of hard.

We're versus software versus processing. Obviously, the vast majority of our revenue in the merchant acceptance businesses, the merchant acquiring revenue inside of Clover, I'm assuming that hardware that we sell, but the magic to Clover is you sell the hardware and then you have a processing client. A merchant acquiring client for years and years with my attach and high attainment rate and we continue to focus on that.

[Timothy Chiodo, Credit Suisse]

Okay, great. Thank you so much for the Hub.

[Operator]

Thank you. Our next question comes from David Togut from Evercore ISI, please go ahead.

[David Togut, Evercore ISI]

Thank you, good morning. Within merchant acceptance, what impact are you seeing on your payment volume when a competitive buy now pay later solution is added at one of your e-commerce clients. And in particular, I'd appreciate your help with two things Number one, are you retaining the merchant acquiring or merchant processing when a BNPL Company has added or are they bring in their own merchant acquirer? And number two, do you have any insights into funding mix when BNPL gets added at one of your clients in terms of debit versus credit. Thank you.

[Bob Hau, Chief Financial Officer]

Yeah I think a couple of things. Number one, we have a number of referral partners and over the last several quarters we've announced these are talked about these, whether it's CIP for bread or Citizens Pay, we continue to be focused on enabling multiple options for our merchants. And obviously, where the merchant acquirer for those merchants and so providing that capability, maintains that relationship with those merchants. In terms of credit versus ACH, cetera. I think broad industry view is today a large portion of that paying for buy now pay later activity is actually paid or are finely executed to from card payments.

[David Togut, Evercore ISI]

So you're not seeing any specific mix in terms of when you look across BNPL adoption at your customers?

[Bob Hau, Chief Financial Officer]

No, I think the key there is well, buy now pay later has a high volume in terms of news. It's still a relatively small portion of the overall TPV or merchant space and not moving the needle. And in fact, in some instances, instead of one transaction, you're actually seeing four transactions.

[David Togut, Evercore ISI]

Understood. Thank you very much.

[Operator]

Thank you. Our next question comes from Dan Dolev from Mizuho. Please go ahead.

[Dan Dolev, Mizuho]

Good morning. Thank you for taking my question. Can you give us some color on the -- what's implied in the fourth quarter, organic growth guidance for the two other segments for payments and Fintech. That would be great. Thank you.

[Bob Hau, Chief Financial Officer]

Dan, you were quite multiple key to repeat that question?

[Dan Dolev, Mizuho]

Can you give us some color on what's implied by the guidance for the organic growth, guidance for the other two segments can take and payments in networks.

[Bob Hau, Chief Financial Officer]

Yes. So I think I tried to give some of that color in our prepared remarks. In our Fintech segment, year-to-date, we're now at 4% and we expect for the full year to be in that medium-term outlook range of 4% to 6%. And then in our payment segment, again, relative to our medium-term guidance, our medium-term outlook of 5% to 8%, we expect to be in that range. That is adjusted from previously were expected to be at the high end of their -- towards the high end of the range. Right now, it's just in the range. And year-to-date we're at 5%.

[Dan Dolev, Mizuho]

Got it. Thank you so much.

[Operator]

Thank you. And that was our last question for today's call.

[Frank Bisignano, President and Chief Executive Officer]

I'd like to thank everybody for joining us this morning. We appreciate your support. If you have further questions, please contact. Investor Relations team. Have a great day and thank you for everything.

[Operator]

Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest of your day.