Is Fiserv preparing for a split?

Not clear what a split accomplishes

Introduction

Fiserv had a crummy quarter that nevertheless met expectations. Here is how management described it:

“1H26 results (- 3% Y/Y adjusted revenue, 31% adjusted operating margin) in- line with 1H26 May Investor Day view”

Effectively, management told us performance would be uninspiring back in May and they delivered those uninspiring results for Q2. Congratulations?

New leadership seems to be stripping away distractions to focus on the core franchise. They sold a couple of businesses and exited a couple of markets. These are positive moves. The questions we can try to answer from the presentation is whether the remaining core can start growing faster, or whether macro or competitive factors will get in the way.

I will address Merchant Services and Financial Solutions separately and then comment on whether the two are indeed stronger together or would do better as separate businesses.

Merchant Solutions

Overall revenue was down YoY although seasonally up from the prior quarter. Small Business generally, and Clover specifically, drive results here. Small business provides the bulk of revenue and, at least historically, revenue growth. This quarter that didn’t happen:

They note that Clover had “strength globally” suggesting US Clover growth was lower than 11%. A few observations on this:

Clover vs. Non-Clover small business

Earlier this year Fiserv faced a mini-scandal from pushing Clover too hard through its indirect channels. That was taking share from Non-Clover, but it was also turning off some businesses from Fiserv entirely. When the hard-sell was scaled back, growth between Clover and Non-Clover balanced. Now, Clover is growing smartly while Non-Clover is shrinking.

I was tempted to blame this on the end of the Wells Fargo JV, but Wells still sells Clover. We do see a steep drop in “Processing” revenue which comes in part from the JVs. But Wells has yet to separate, so this is unlikely. Wells may have shifted toward emphasizing Clover more, but otherwise it hard to see why non-Clover dropped so steeply.

The good news is that Clover has much higher share-of-wallet potential than non-Clover due to the Tablet form factor. They point out that VAS penetration rose 1% and VAS revenue rose 10%.

Relative growth versus major competitors

Clover’s two biggest competitors grew TPV and Revenue faster than Clover: