Fiserv: the Steady Eddy that processes America’s readies

Unless their logos appear on credit or debit cards, big payments groups tend to be ubiquitous but invisible. That certainly applies to Fiserv of the US. Investors would do well to know it better.

Wisconsin-based Fiserv is one of the “Big Three” in bank technology. Alongside rival FIS and Jack Henry, the company provides the processing power that keeps the US retail banking system humming. It does everything from tracking customer deposits to handling debit card transactions.

Selling payments, processing and financial technology services to banks and credit unions may not be flashy. But it is steady and profitable. Fiserv made $17.7bn in revenue last year, a 9 per cent jump. Net income nearly doubled to $2.5bn. Shares are up 25 per cent over the past 12 months to give the company a market valuation of $74bn. That is more than super regional banks like PNC, Truist and US Bancorp.

Like FIS, Fiserv made the leap into merchant payment processing with a big acquisition. It bought First Data in a $39bn deal in 2019. Unlike its rival, which last month announced plans to spin off Worldpay, the payments business it bought for $43bn just four years ago, Fiserv has successfully integrated its big ticket purchase.

Merchant payments — led by Clover, a rival to Square previously owned by First Data and Carat — is now Fiserv’s fastest-growing division. Revenue from the unit rose 12.5 per cent last year to $7.3bn. 

By contrast, FIS has struggled to keep smaller businesses from defecting. Merchants complained about outdated technology. The lack of a portable, branded point-of-sale terminal put it at a disadvantage.

Pre-acquisition, Fiserv and FIS boasted similar market values. Fiserv’s strength in merchant payments has allowed it to outperform. The company is worth twice as much as FIS these days.

The stock is also trading at around 16 times forward earnings, a 50 per cent premium to FIS. The gap should persist as Fiserv cements its reputation as the Steady Eddy of bank technology stocks.