More thoughts on $FISV, digging into the Payments & Network segment (~40% of FISV revenue)

TLDR: Lots of moving parts but this is where the most synergies and growth optionality can be found, with 2 highly complementary and strategic pieces of legacy FISV/FDC now merged together

1) $FISV Payments & Network is a dynamic set of businesses, best summarized as payment solutions for banks comprising:
- card payments and related services to issuers of all sizes, worldwide (2/3 of segment revenue)
- non-card digital payments: P2P, A2A, RTP, Bill Pay (other 1/3)

2) Focusing first on the $FISV card payments business, today this is the:

a) undisputed #1 in issuer processing with capabilities across all products (credit, debit, private label, installment loans) operating around the

b) clear #3 debit network in the behind $V and $MA

3) Legacy $FISV historically focused on small/mid-sized debit issuers and ATM processing in the , while FDC served large issuers of both credit and debit around the

Through the merger, they also combined 2 of the leading PIN debit networks in : Accel (FISV) + Star (FDC)

4) These $FISV card payments businesses are 2/3 of segment revenue, roughly equally split between:

Issuer Solutions: processing for large issuers

Card Services: processing for small/mid-sized issuers + the PIN debit networks

Lots of synergies across these complementary assets

5) The combined issuer businesses of $FISV/FDC process for 1.4B card accounts globally

It’s $3B+ revenue vs. #2 TSYS which is ~$2B and focused on large credit issuers only

In largest market , $FIS, $V DPS, $JKHY also compete as 3rd party processors vs banks’ in-house systems

6) Since it serves such a diverse set of banks, $FISV organizes issuer processing to target 2 distinct sets of customers:

- large issuers seeking customized, a la cart solutions fit for need

- smaller banks that prefer integrated solutions, bundled around core processing

7) The $FISV large issuer business is $2B+ revenue and serves 26 of top 50 US credit issuers (12 of these combined credit and debit), 5 of top 6 US private label issuers, 5 of top 10 issuers in EMEA, 7 of top 12 credit issuers in India and a growing presence in LatAm

8) $FISV issuer processing operates 2 FDC platforms: Optis () and VisionPlus (), the latter either fully outsourced processing or as software license for banks to run in-house

Coincidentally, legacy FISV was already using VisionPlus as it’s underlying issuer processing stack

9) In the market, $FISV issuer processing is focusing on extending reach of Optis with large issuers (recently won $ADS and 2 other top 25), while expanding in adjacent growth markets: processing installment/BNPL loans and commercial/B2B cards on the same platform

10) Already well positioned around (doubling accounts processed ex-US since 2016), $FISV has a long runway to continue scaling VisionPlus overseas where billions of accounts are still processed in-house

Ample green field opportunity for the leading 3rd party processor to grow

11) For this large issuer subsegment, $FISV is guiding to 5-7% organic growth, which on current $2B+ revenue base is ~$100-150M/yr — not heroic given the $1B attainable revenue opportunity identified: $600M between new solutions/adjacent markets and $400M via international growth

12) Integrated Solutions is the other $FISV issuer processing unit, which serves 3,500+ small/mid-sized banks in that overlap with FISV’s core processing footprint

With nearly $1B revenue, its tightly bundled card processing + core account processing drives differentiation https://twitter.com/bluetoothdds/status/1339437491548516352

13) The $FISV integrated offering is quite simple — surround debit processing with ATM, credit, PIN network, loyalty, risk, etc — all services that small banks and credit unions need to compete effectively, delivered by a single provider leveraging the existing core relationship

14) Every bank today offers debit cards and $FISV is highly successful cross selling these other services, typically signing up 100+ small banks/yr to debit processing with 75%+ attach rates on other surrounds

Credit (through FDC Optis) + ATM (from 2018 Elan acq’n) are still new

15) Ability to process credit for small bank/credit unions was a big gap that $FISV filled now with FDC’s Optis platform

The TAM is 4K banks: FISV provides credit processing today for ~400. At 75% attach rate to banks it already provides debit processing, FISV could add 1K+ more

16) The other half of the $FISV Card Services segment is the network assets of combined Star/Accel, together ~$700M revenue

Enabled on the back of 1 in every 3 debit cards in with 5K participating issuers, FISV owns the clear #3 US debit network with ~25% share behind V/MA https://twitter.com/bluetoothdds/status/1245826416324661248

17) $FISV has big plans for this small, but strategic asset in the merged portfolio

It’s already taken action on several initiatives that will generate $170M+ annual incremental revenue (+25% uplift vs combined Star/Accel pre merger), with room for more over time

18) Initiatives include leveraging the $FISV footprint across banks/merchants to drive more issuance/usage of cards enabled and routing of transactions over Star/Accel vs V/MA rails

With connectivity into so many endpoints, there’s optionality on ways to use these network assets

19) Why does PIN debit matter?

In a post-Durbin world:

1) Issuers of V/MA debit in must enable a 2nd unaffiliated (non-V/MA) network brand on the back of card

2) Merchants accepting V/MA debit have the option to route transactions over this 2nd network, typically lower fees

20) The merchant footprint of $FISV is ideally suited to help it grow PIN debit:

- lots of SMB merchants who typically delegate routing decisions to their acquirer (i.e. FISV), and

- a large merchants where volume is concentrated in debit heavy verticals such as grocery/petro

21) US debit market: $3T of GDV, $8B of network revenue

Currently 2/3 of GDV (even more of revenue) is dual-message signature debit (non-PIN) captured 100% by $V (~2/3) $MA (1/3)

$FISV (Star/Accel) only playing in single-message PIN today but has ambitions to expand to non-PIN

22) As the largest non-V/MA network in this $8B revenue market, $FISV has plenty of upside and very little downside (~$700M revenue from Star/Accel today) if the status quo is shaken up a bit

Two area of growth are single message PIN-less debit for e-comm + dual message non-PIN

23) Back to Durbin, who has been very vocal recently in pushing for more widespread enablement of PIN debit in a post-COVID world of increased digital retail/e-commerce

$FISV would be the #1 beneficiary of any disruption to the V/MA duopoly in US debit https://www.digitaltransactions.net/durbin-asks-fed-chairman-appropriate-enforcement-action-involving-debit-card-transaction-routing/

24) Putting this together, the combined Integrated Solutions and Network subsegments of $FISV have a 8-10% growth outlook, implying some ~$150M/yr in incremental revenue off a base of ~$1.6B. FISV sizes the attainable opportunity at $1B unlocked from deal synergies and new growth

25) The other 1/3 of segment revenue is what $FISV calls Digital Payments

This is essentially anything non-card, including P2 (Zelle), Bill Pay, A2A (DDA based ACH) and RTP (real-time/instant for consumer and B2B use cases) in addition to legacy check/wire payments for banks

... TBC, more later today