Tuesday , November 12, 2019

Having Absorbed First Data, Fiserv Looks To Cut Costs While Staying Competitive

Top executives of the newly combined Fiserv Inc.-First Data Corp. say they can save more than $1.1 billion in annual costs while still developing competitive new products and markets for their bank and merchant clients.

“The power of this new company has far greater reach than I imagined when we decided to put it together,” said Frank J. Bisignano, the former chief executive of First Data who is now president and chief operating officer of Brookfield, Wis.-based Fiserv. Bisignano made his comments with Jeffery W. Yabuki, the long-time Fiserv chief executive who retains that title in the combined company, which held its first quarterly earnings conference call late Wednesday.

Fiserv’s $22 billion all-stock acquisition of First Data closed July 29. Now the task of melding First Data, the biggest processor in credit and debit card payments, with Fiserv, a leader in core processing services, bill payments, debit products and other services for banks and credit unions, is underway full bore. Executives reiterated the claim they’ve made since the deal was announced in January, that they can achieve $900 million in annual cost savings. Add to that another $200 million in reduced interest expense, leading chief financial officer Robert W. Hau to tell analysts the company is aiming for $1.1 billion in annual cost savings. 

“We’re incredibly optimistic about the future growth potential in these digitally-centric merchant businesses,” says CEO Yabuki.

One of the first targets will be vendor expenses, which Bisignano pegged at $4 billion annually, as well as overall corporate expenses and duplicative technology spending. But the bean counters supposedly won’t have full sway. Fiserv has established a $500 million fund to invest in new products and services for digital commerce, card payments, risk and fraud control, and network innovation, according to Bisignano. And Fiserv is looking for $200 million in “revenue synergies” by cross-selling each partner’s products and services to clients of the other.

“Our goal is to streamline our overall cost structure while delivering more compelling and even higher-quality solutions to our clients,” he said.

One object of corporate attention is likely to be debit network services, though neither Bisignano nor Yabuki gave details. First Data owned the Star debit network, while Fiserv owned the rival Accel network. “The combination of Star and Accel further enhances our position as the third-largest network in the U.S., with important issuer and merchant clients,” Bisignano said.

Several legacy First Data businesses posted strong results in the third quarter ended Sept. 30. Small and mid-sized merchants using First Data’s Clover hardware and software systems crossed the $100 billion threshold in annualized payment volume, up 40% from a year earlier, Yabuki reported. E-commerce merchant transactions grew 30% in the quarter and year to date. Partners in legacy First Data’s integrated payments and independent software vendor businesses grew 20%. 

“We’re incredibly optimistic about the future growth potential in these digitally-centric merchant businesses,” Yabuki said.

CFO Hau reported that ISV revenues have grown more than 60% year to date, “and we’ve added more than 18,000 new ISV merchants.”

The merged Fiserv reported third-quarter net income of $198 million, down 13% from $227 million a year earlier, on revenues of $3.13 billion, more than double the $1.41 billion in 2018’s third quarter. Revenues in First Data’s merchant-processing segment, which was its biggest, grew 10% year-over-year and in 2019’s first nine months versus a year earlier.

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