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Welcome to the Fiserv 2023 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. At this time, I will turn the call over to Julie Chariell, Senior Vice President of Investor Relations at Fiserv.

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now I’ll turn the call over to Frank.

Thank you, Julie, and thank you all for joining us today to discuss how Fiserv continues to deliver very strong results. For the third quarter, we posted 12% organic revenue growth with margin expansion of 290 basis points to 38.1% on an adjusted basis. These results reflect an acceleration in our Merchant Acceptance and Fintech segment organic revenue growth to 20% and 6%, respectively. While all three segments contributed to higher margin, adjusted earnings per share of $1.96 was up 20%. Cash flow was strong as well with $1.3 billion of free cash flow in the quarter and $2.7 billion year-to-date. Once again, strong quarterly results point to full year performance ahead of our prior guidance. In the closing month of 2023, market projections in consumer spending and card account growth in the U.S. point to consistency versus third quarter levels, which would mean some softening year-over-year. Macro uncertainty remains high, but we are confident in our ability to continue to add new clients, grow with and retain existing ones and expand our share of wallet with all of them. Because of this, we expect to close the year with growth similar to the year-to-date results. We also look to the more durable characteristics of our business to support our optimism. Nearly half of our volume in our Merchant business is in nondiscretionary spending categories. Approximately 85% of our financial institutions revenue is recurring. Our solutions in both areas service essential functions for our clients. Our customer base and distribution network are industry-leading. Our incremental margins are high, and our expense base benefits from technology-driven efficiencies and discretionary investment that we can adjust to match market conditions. It is these characteristics that helped us deliver 37 consecutive years of double-digit adjusted earnings per share growth, and 2023 year-to-date results point to this being our 38th year. Our strong execution across these factors leads us to raise our guidance for the remainder of the year. We now expect 2023 organic revenue growth to reach 11%, the top end of our prior range of 9% to 11%; and our adjusted operating margin to improve more than 175 basis points this year, up from our prior expectation of at least 150 basis points of expansion. With this, we are raising our full year adjusted earnings per share guidance to a new range of $7.47 to $7.52, up $0.05 at the midpoint and representing growth of 15% to 16% over 2022. We are also raising our free cash flow guidance from $3.8 billion to approximately $4 billion this year. The third quarter marked our tenth consecutive quarter of double-digit organic revenue growth, and we are focused on sustaining this momentum. Last quarter, I talked about five powerful opportunities that can help us do this. So I’ll share some proof points we achieved in the third quarter. Let’s start with Clover, our market-leading cloud-based SaaS operating system for small and medium-sized businesses. Revenue growth accelerated in the third quarter to 26% from 23% in Q2 on $272 billion in annualized payment volume, up 15%. We released a new Clover dashboard with improved user experience that expedites navigation to our top apps, including reporting and analytics. We added other features that speeds the buying process Clover.com and improved the application process for new merchant prospects. We expect this functionality to open opportunities for Clover with a long tail of merchants growing our addressable market. Value-added solutions penetration continues to grow, reaching 17% in the quarter. We see plenty of white space still ahead, including with vertical-specific solutions, horizontal value-added services and software in international markets. We’re retaining line of sight to an acceleration of revenue growth that results in $3.5 billion-plus in Clover revenue by 2025, the target laid out at our March 2022 investor presentation. Moving to Carat, our unified commerce offering for omnichannel merchants. We added several new enterprise clients and relationship extensions, including a large petrol seller and a major grocery chain, adding to our nondiscretionary spending categories. We continue to drive value-added solutions with enterprise clients. And wins in the quarter came from products addressing feedbacks and platforms, foreign currency translation, fraud and hotel and restaurants with BentoBox. We’re pleased to announce that PayPal has selected Fiserv as its core U.S. partner for payment services across both PayPal and Braintree assets. This is a new direct strategic multiyear partnership covering several products and services and millions of merchant locations that builds on a long-standing base of business between our two companies. International expansion continues with Carat, and we had several wins in the quarter across our regions. In EMEA, we won a competitive bid to help Compass Group, the world’s largest contract foodservice company, built unattended food retail services across 14 countries in Europe. We are providing acquiring, local payment methods and real-time inventory data across our single Carat omnichannel platform for Europe. Our differentiation was in our functionality around data normalization, real-time access, visualization and reporting depth and breadth. Asia Pacific, we extended our global merchant acquiring relationship with Avis Budget, one of the world’s largest car rental providers, into Australia and New

Thank you, Frank, and good morning, everyone. If you’re following along on our slides, I will cover details on total company and segment performance, starting with our financial metrics and trends on Slide 4. As Frank said, our third quarter was very strong. We are confident in our new 2023 outlook and ability to continue to deliver attractive levels of growth and profitability. Total company organic revenue growth was 12% in the quarter with strong growth across Merchant Acceptance and a solid recovery in growth in the Fintech segment. Year-to-date, total company organic revenue grew 11%, led by the Merchant Acceptance segment, which grew 17%. Total company adjusted revenue of $4.6 billion grew 8% for the quarter despite a meaningful foreign currency headwind. Adjusted operating income grew 17% in the quarter to $1.8 billion, resulting in adjusted operating margin of 38.1%, an increase of 290 basis points. Year-to-date, adjusted revenue grew 8% to $13.4 billion, and adjusted operating income increased 16% to $4.8 billion, resulting in adjusted operating margin of 36.1%, an increase of 250 basis points. Adjusted earnings per share for the quarter increased 20% to $1.96 compared to $1.63 in the prior year. Year-to-date, adjusted earnings per share increased 16% to $5.34, at the high end of the 14% to 16% annual prior guidance range. Our adjusted earnings per share growth is particularly noteworthy given the impact of foreign currency translation. Mostly due to the sharp devaluation of the Argentine peso relative to the dollar, our earnings per share includes a headwind of $0.24 for the quarter versus prior year. Free cash flow reached $1.3 billion for the quarter, up 48% versus the prior year and $2.7 billion for the first 9 months of the year, up 29%. We are raising our free cash flow guidance and now expect to reach $4 billion this year, reflecting the typical strength in our cash flow generation in the second half of the year. Now looking to our segment results starting on Slide 5. Organic revenue growth in the Merchant Acceptance segment was a strong 20% in the quarter and 17% year-to-date. We now anticipate organic revenue growth to be in the high teens for the full year. Adjusted revenue growth was 12% in the quarter and 11% year-to-date. Organic revenue growth in this segment is running well ahead of our medium-term guidance for 9% to 12% growth, driven by growth in Clover, our ISV channel and our international businesses as well as several transitory factors that we expect will ease in future years. The elevated Argentine inflation, which is running well above 100% this year, contributed about 2 points of organic growth for the segment on a year-to-date basis. Additionally, high interest rates in Argentina have contributed to a stronger growth in anticipation revenue. But even as rates normalize, we expect demand for these prepayments to be healthy given the extended settlement periods here as well as in Brazil and Uruguay. Turning to volume performance in the quarter. Merchant volume grew 2% overall and 6% excluding wholesale processing. Similarly, transactions grew 1% overall and 9% excluding processing. Recall that a large portion of our volume comes from traditional wholesale processing. However, over the last several years, we’ve been evolving from providing processing services alone to offering full acquiring services and more recently software and other value-added solutions. This transition changes our business model for the better. Our SMB and enterprise acquiring businesses carry much higher revenue per dollar volume compared to the wholesale processing business. So as acquiring grows and wholesale processing becomes a smaller portion of our volume, we are seeing a widening positive spread with revenue growth outpacing volume growth in large part due to value-added services. Going forward, processing volume will ebb and flow. As a reminder, we projected $10 billion of revenue in this Merchant Acceptance segment in 2025 with processing revenue roughly flat from 2021 to 2025. We expect overall revenue growth will continue to outpace volume growth as we increase penetration of software and services, which means more revenue per unit of volume. Clover continues to build on the strength of its growing product offering, distribution partnerships, expanded direct sales and value-added solutions. It posted a strong 26% revenue growth for the quarter and 23% year-to-date. Quarterly Clover GPV was $68 billion or $272 billion on an annualized basis, up 15%. Value-added services penetration was 17%, over 2 points above year-ago levels and on track to achieve our 25% target by 2025. Carat, our omni-commerce operating system for enterprise clients, grew 14% excluding the loss of a large merchant aggregator, as discussed last quarter. On an unadjusted basis, Carat revenue grew 2%. We had two large wins that included our Commerce Hub product, the new single orchestration layer that enables easy access to all our products and services. First with Curb Mobility, the taxi-hailing service; and second, with Autobooks, an accounting and bookkeeping system provider to small business. Adjusted operating income in the Acceptance segment increased 24% to $757 million in the quarter, and adjusted operating margin was up 350 basis points to 35.9%. Year-to-date, adjusted operating income improved 22% to $2 billion and adjusted operating margin grew 300 basis points to 33.8%. Turning to Slide 6, the Payments and Network segment. Organic revenue growth in the segment was 6% in the quarter and 9% year-to-date. Adjusted revenue growth in the quarter was 5% and 8% year-to-date. Growth drivers in this segment include North American credit active accounts on file, though growth here slowed a bit to 3%. And

Thanks, Bob. I’ll provide a brief update on our CSR activities and most recent recognitions before we wrap up and move to Q&A. During the quarter, we continued to expand our focus on minority depository institutions, or MDIs. In September, we hosted our inaugural MDI Advisory Council meeting, where we discussed future save products and strategies and how to better integrate Fiserv solutions at council members’ banks to help them grow and better serve their clients. We were active on the back-to-business front as well. So far this year, Fiserv’s back-to-business program has funded almost 200 grants totaling nearly $2 million for small, diverse merchant businesses. Also, in the third quarter, our leadership position in Fintech was affirmed when IDC ranked Fiserv number one on its top 100 ranking of global financial technology providers. CNBC also named us a top Fintech company. And Time Magazine included Fiserv on its list of World’s Best Companies in 2023. I’d like to conclude my formal remarks with what to expect from our upcoming investor conference on November 15. This will be our first full business review in 3 years. Our work to integrate First Data and Fiserv is not only done, but is driving real value in the marketplace across merchants and financial institutions in a way that only this combined company can. Our assets are now unmatched when you consider that we have a large and diverse client base from financial institutions of all sizes, to small businesses, to large enterprises around the world, spanning all sectors and containing many leaders in their respective industries; a global footprint in over 100 countries organized by region and known for deep local expertise; a modern stack computing environment with private and public cloud capability; scale-based leadership in merchant acquiring, driven in part by a superior distribution model; the largest SMB SaaS payment platform by volume with Clover; the leading credit card issuing platform offering cutting-edge cardholder experiences; the number three debit network; our NOW network that optimizes connections between our bank and credit union clients and payment rails of all types, from cards, to ACH, to real time; the best bank and credit union account processing platforms; and the broadest set of value-added surround solutions. And finally, cross-platform opportunities that expand our addressable market and that Fiserv is uniquely positioned to deliver. This includes our new SMB accounts payable and receivable market opportunity and our embedded finance offering, where our newest Fintech platform, Finxact, is enabling banking services offered by merchants, starting with one of the world’s largest retailers. We’ll expand on these opportunities and more in a few weeks’ time, and we’ll share a compelling 3-year forward plan that will help you understand how we intend to defend and extend our lead in Fintech. Thank you to our teams who come to work every day and build and deliver on this plan. And thank you all for your time and attention today. And now operator, please open the lines for questions.

Thank you. We would now like to open the phone lines for questions. [Operator Instructions] Our first question comes from Timothy Chiodo from UBS. Please go ahead.

Thanks a lot for taking the question. I want to touch on enterprise e-commerce competition, very topical in the market right now, and you mentioned many new Carat wins. Maybe you could talk a little bit about STAR and Accel and how bundling those networks is helping you to win share? But not just STAR and Accel, some of the other services that are more frequently appealing to the enterprise e-comm merchants as you win these RFPs, I would appreciate that.

Thank you, Tim. Good to hear from you. I’d start at the top, right? We committed to the build-out of our omni-channel capability and we brought in Commerce Hub as fundamentally a centerpiece of that. And that really gets to the point that you bring, which is what I would call more value-added services than just fee account volume. Our debit routing capability is very, very strong, and it allows us to, also with the debit network, to be able to give our clients the opportunity to work on lowering the cost of acceptance, a platform that we’ve thought about across the business for a very long time. Created other value-added services, like our prepaid products and gift, also gives us what we believe is a strategic advantage. So in many of our businesses, you’ll hear us talk about it across – we’ll have the fundamental processing capability and acquiring capability, but then bringing across the other value-added services. And that’s the benefit of this company, it gives us a strategic advantage. So I think about it in those aspects, really. And I think when you look at PayPal and the like, it gives us a really good hand to be able to do more with them besides only e-comm, and also for other clients, it’s the omnichannel experience that we bring to them across the enterprise.

Excellent. Thank you, Frank.

Thank you.

Next, we’ll go to the line of Dave Togut from Evercore ISI. Please go ahead.

Thank you. Good to see the acceleration in Clover revenue growth and the increased penetration of value-added services. Could you just drill down into what you see as the biggest drivers of growth in value-added services going forward, taking you to the model you’ve laid out for 2025?

I mean, for us, it’s software stacks against verticals, and then there’s a horizontal capability. Obviously, employee management, everything from timekeeping systems to the way, in fact, they’re managing their workforce is a capability that gets used horizontally. If you look at other pieces, it will be inventory for some specific businesses. And I think if you look at our penetration rate, it continues to grow because the bundles continue to get stickier. You heard us then today announce Melio – or yesterday announce Melio, I should say. And that will be another – it goes beyond Merchant, and we can talk about that later if you all like. But it will be in their offering to our merchant base in total, and that would be an example of bringing in capabilities that we didn’t have for them before that we will. So I think we started – if you remember, we started Clover with the concept of an app store. We converted that into understanding what are the natural characteristics of specific verticals and then what is the horizontal capability that we will bring across it. And we feel good about the growth and we see the trajectory of both signing up new merchants and also the ability to bring more product to our current merchants.

And just as a quick follow-up. Bob, good to see the free cash flow up 48% year-over-year in the third quarter. CapEx was down 17%. Are we moving toward lower capital intensity going forward? Or is this just a function of an easy comparison?

Yes. I would definitely, David, point to really timing of the capital spending and comparisons. I would expect full year 2023 to be in line with last year’s spending overall. And I think we’ve said in the past, as we look forward, we think the capital levels that we’ve got right now are about correct going forward. We’ll see a growth in revenue, and therefore, as a percent of revenue, perhaps some easing. But order of magnitude, that $1.5 billion for the full year is right in line with what we’d expect.

Thank you very much.

Next, we’ll go to the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

Thank you. Great results here. On the Acceptance side in Lat Am specifically, I’m curious with the anticipation revenue likely to ease there, and you gave some disclosure. I’m just curious, what do you see replacing that growth in Lat Am? How does the deal pipeline look there?

Yes. Tien-Tsin, I think, we pointed out in our prepared remarks, we’re definitely seeing some "transitory benefits" in Latin America, particularly in Argentina, around higher-than-normal inflation and higher-than-normal interest rates. That is definitely giving us a lift from an anticipation standpoint. I think we basically are anticipating cash into the merchant. We’re in the middle of the payment flow. And so we’re able to provide that as a service to our merchants so that they can settle their transactions earlier than the typical 30-day cycle in that region. Interest rates, we get a spread on the interest. And of course, we’re able to borrow at a cheaper rate than our merchants might be able to borrow. So that’s a good business for us, very low risk because we’re in the middle of that flow. If you anticipate interest rates to ease into the future, which I would expect they will, you’ll see some easing of the revenue, but not in the spread. And so it remains a very good business for us. And of course, the debate will be at what rate does either inflation and/or interest rates ease. An important element, though, is a very correlated number to both inflation and interest rates is FX. And while, from an organic standpoint, we don’t have FX because our organic results are at constant currency, it’s certainly in our adjusted revenue and our EPS. And so we’ll see some easing of that transitory inflation and interest impact will also see some easing about FX impact, net-net. Overall results on an adjusted revenue basis and an adjusted EPS basis will remain strong. About Latin America, it’s a tremendous franchise for us, not only in Argentina, but in Brazil. We continue to grow and expand in Uruguay and Mexico, in the Caribbean. It’s a tremendous capability for us and providing a good growth in the recent history and expect it to continue into the future.

Glad to hear, Bob. Just real quick, if you don’t mind me asking another one just on Fintech. You mentioned medium bank – and overall bank spending has been healthy on the IT side. How about new deal activity, large deals, et cetera? Do you see that continuing here as we cross into the new calendar year? I’m just curious where the appetite is for new spend in the banking community.

I think – yes. I think the dialogue is robust. I think Finxact has definitely added to that dialogue from where we were before. In my prepared remarks, I talk about our platform serving bank and credit union. I have a deep belief, and I think the market has a deep belief, that DNA and Finxact are industry leaders in capabilities. We had always talked about going further up market. Obviously, I think if you look at total banks that run on a system, we’re the market leader. But we’re also driving north and I think those two assets really help us. And there’s lots of robust dialogue, now we need to turn the robust dialogue into closed deals and then we’ve got to convert it. But I feel good about the long term. We’ll talk about it clearly on November 15. I also think, when we look at FIs in total, which is the way ultimately we look at it, when you look at how we’ve performed in Fintech and Payments, if you want to think about it that way, we’ve been very, very strong. The ability to bring our surrounds, that’s probably a year-to-date 7% number. We’ve been able to bring our surrounds in our banking platforms, and that’s really what attracts the new book, so to speak. So we’re in deep dialogues on big deals. And I have not seen a slowdown in banks’ appetite at all for the things we have.

Terrific. Thank you.

Next, we’ll go to the line of Jason Kupferberg from Bank of America. Please go ahead.

Good morning, guys. Thanks. So on the Acceptance segment, it doesn’t sound like your Q4 guide is really contemplating any material change in the trajectory of overall consumer spending. I was hoping you could maybe give a little insight into what you’ve seen in October, both with regard to volume and transaction data ex-wholesale versus September, let’s say? And any shifts in discretionary versus nondiscretionary spend categories in the past month? Thanks.

Yes, Jason, overall, so far, what we’ve seen in October is very similar to what we saw through the third quarter. Consumer continues to be quite resilient. Quite frankly, I’m tired of using the word uncertain. We’ve lived in a pretty uncertain environment for the last 3-plus years and probably a lot earlier than that. There are certainly some verticals within our overall merchant book that are softer than others. Roughly half of our merchant volume is – or merchant revenue is discretionary – in nondiscretionary, so we’re nicely balanced there. We’re certainly seeing some softness in retail. The restaurants continue to be quite steady. So overall, obviously, we’re very early in the quarter. And as you know, holiday spending in December month is a big part of the quarter, but so far, right in line with what we saw in Q3.

Okay. Good to hear. And just on the Fintech segment, it looks like you need to see maybe a little bit of organic growth acceleration in Q4 against a bit of a tougher comp to get to the low end of that 4% to 6% guide. Can you just parse out some of the drivers there and your visibility on that?

Yes. I think in order to reach the low end of that guidance that we talked about, the low end of the 4% to 6%, we’ve got to repeat the 6% organic growth that we saw in the fourth quarter. To your point, yes, it’s against a tougher comparison in Q4 versus Q3 of last year. Obviously, we’ve got some implementations. These are long-cycle implementations. And as those go live, you get some ramp on that revenue, and that does take time. So some of it went live in Q3, and we’ll see acceleration into Q4. We’ll see new clients going live in Q4. Obviously, there’s ongoing swings or variability in the periodic revenue in order to deliver that 4% on a full year basis. And I think as Frank pointed out, our financial institutions clients look to us for a broad suite of software and services, and the combined Fintech and Payments business, which is really where we go to market with our financial institution clients, is up 7% organically on a year-to-date basis. Pretty steady, stronger Q1, a good Q2, good Q3. We expect to close out the year at that rate, that level. And overall, financial institution clients continue to look to us to provide services, and anticipate that continuing in fourth quarter and into next year.

Thanks, Bob.

Next, we’ll go to the line of Dan Dolev from Mizuho Securities. Please go ahead.

Hey, great quarter. Congrats. I was particularly interested in the Melio partnership. Frank, can you maybe give us some more color, if you think like 2, 3 years out, how could this change the way people think of Fiserv in terms of kind of its B2B capability,

Yes. I’m not – I’m thinking if I necessarily want them to think about us change or think about this is who we are, the ability to distribute great capability to our outstanding client base. And I want to make the point that this product works really, really well with our bill pay CheckFree product and allows us to go to our SMBs exclusively in the FI channel with it, and allow our banks to actually, ultimately, have a new offering that will increase their fee revenue and in fact increase our revenue. So I think it’s solidifying our position in SMB. Yes, it will also be distributed to our ISV clients and our Clover clients. But there are many clients that do not receive payments via card, and this is taking something to the whole swath of them that we did not have. You should expect us in market in the summer of ‘24 on it. And once again, we’re helping our bank partners bring more product and grow their revenue, much like we do in the merchant business, and we’re adding to the stickiness of our SMB portfolio.

Great. Thank you, and congrats again on the amazing quarter.

Thanks, Dan. Good to hear from you.

Next, we’ll go to the line of Dave Koning from Baird. Please go ahead.

Yes. Hey, guys, great job. And maybe on just the merchant acquiring industry, there’s been the fears of commoditization. But if anything, you’ve shown the strongest growth in years, your yields have been going up, not down. But what about churn? Like have you seen noticeable improvement in churn or retention really over the last few quarters as well?

Yes. But I think it’s good to step back for a second here because we’ve been in a multiyear transformation that has allowed us to produce what we’re producing today. That would include Clover. That will include building a business in Brazil. That will include bringing Clover to Argentina, right? So there’s a lot of dimensions to how we are where we are. The ability to drive ARPU in our base, we get a wholesale processing business, which we talked about being $1 billion of revenue and flat, but that business is like 40% of our volume. In that core direct business that we continue to grow, you should continue us to bring more product in and just make those relationships stickier. And what we see is when we have 3 to 4 products in a client, the churn is best-in-class. And that’s why we’re so focused on ARPU and more clients. Yes, in single-dimensional clients that aren’t Clover, you see higher churn.

Great. Thanks. And one quick follow-up. What was the Q2 number for – with Q3, the volume ex processing of 6%. What was that number in Q2?

Dave, I actually don’t have that right at my fingertips. It’s not a number we’ve disclosed previously. Let me get that. But I think one of the elements or one of the reasons we disclosed that and brought that to everybody this year – or excuse me, this quarter, is to talk about exactly what Frank just pointed out, is this long-term transition from years ago, being a processing-only business, to now a full service capability merchant acquirer. In our March 2022 investor conference on our Merchant business, we talked extensively about building out that Clover software value-added services capability, becoming an operating system. We have an operating system for SMB clients. We have an operating system for enterprise clients. And so as the processing eases a bit from a volume standpoint, the impact to the revenue is a fraction of the processing volume delta. And in many cases, that processing volume becomes merchant acquiring volume at a much better value point for the company because, not only are we doing merchant acquiring, but we’re selling the value-added services. And that delta you saw in Q3 from an overall volume to essentially an enterprise plus SMB volume at 6% is more representative of the overall volume opportunity for the company. And that’s why you’re seeing a very strong organic growth rate in the Merchant segment this quarter, last quarter, last year, the previous year.

Yes. All good. Thanks, guys.

Next, we’ll go to the line of Ramsey El-Assal from Barclays. Please go ahead.

Hi, thanks so much for taking my question this morning. I wanted to ask about the margin outperformance you guys are seeing. And taking a step back, thinking about it in terms of how much is driven by a better business mix, meaning more Clover software,

Yes. I would say we’re always working on how to make things better, right? That’s just every day, we get up, how do we make it better? How do we make it better for our clients? How do we eliminate work that’s not necessary? How do we deliver better quality? How do we do all that? And that’s an element of it. The other element of it is high-quality revenue growth. And our incremental drop-through is very, very strong. So I would say investment, we’ve been completely plowed into, meaning we’re continuing to build our business and invest in our business and deploy resource to it. We have – we always are working on productivity and quality. We talk about a year of operational excellence. But our incremental drop-through rate is very, very strong on the business we have. So I would take it as a mix element. We’re never going to be just one or the other. As I said in my remarks, we do have a lot of discretionary investment, but we feel great about that. And that’s why the Melio product will be out in the summer of ‘24, as an example. So high-quality revenue, good incremental drop-through, continually driving better client stats and productivity. So it’s got to be all of it. We don’t do just one.

Okay. So sort of all of the above. A quick follow-up for me. On the Acceptance volumes, how should we think about that wholesale part of the business evolving over time? Do you see kind of a point of stabilization coming? Or is this a business that we should sort of think of kind of winding down very gradually over a long period of time?

Well, first of all, we talked about it as flat, right? We talked about you should expect it to be fundamentally flat by $10 billion. Now that may mean less volume, even better yield in there, right? There’s a big mix of what’s in processing. We have an ISO business and we have a bank processing business. And by the way, tomorrow, we could bid on another piece of processing. I view it, as I’ve always said, and maybe this is just my heritage and it won’t ring with everybody, as running a correspondent clearing business and running a wholesale broker dealer. I’m never going to get the correspondent clearing business to be a high growth, but it definitely is $1 billion for us that covers a lot of fixed. But our emphasis is on growing our direct business. So I’ll turn over to Bob. And I want you to have that picture. We don’t see it as zero, we said it’d be flat in ‘25.

Ramsey, that flat that Frank is referring to is when we guided to $10 billion of merchant revenue by 2025. In what, 2 – almost 2 years ago now, we were doing about $900 million to $1 billion worth of processing revenue. Our $10 billion outlook assumed that, that would remain flat over that time period. There will be shifts to volume, you’ll get a little bit of price, there will be adds, there will be deletes, there’s some – I think I used the term ebbs and flows in the processing volume. But overall, I anticipate it to be about that $1 billion, which means it was, order of magnitude, 13%, 14% of our revenue. By 2025, it will end up being 10% of our revenue as we grow the full merchant acquiring capability and continue to grow that at a much faster pace than our processing. But that’s a nice $1 billion revenue business for us that we’re happy to have and we’ll continue to manage that effectively. And then before we go to the next question, just going back to David, your question around the enterprise and SMB volume or volume ex processing, it is an acceleration. That 6% that we’re seeing in Q3 is a bit of an acceleration from Q2 levels. So continue to see good growth, and that’s what’s driving the top line for us. We’ll move to the next question.

Yes, absolutely. And for our final question, we’ll go to Vasu Govil from KBW. Please go ahead.

Hi, thank you for taking my questions and congrats on the great quarter. I guess, my first one for Frank. Frank, CFPB just released these open banking regulation proposal. Assuming that goes into effect some time next year, is that a revenue opportunity for Fiserv as banks have to comply? Or do you think that was sort of already happened organically, and so not that meaningful...

I think it was really organically going on. I mean – but if you look at what we just did with Plaid, we’re always going to veer in to bringing more capability to out bank partners. We’re a client business. We run a huge client franchise. We’re out talking to them every day, whether it was what we did at Forum with 3,000 clients, or what we do at [AGBA] or what we do by having 29 women CEOs here for an all-day conference, we want to listen to our clients. And so open banking has been going on, and we’re continuing to align in a way that try our client for franchise.

Great. And then quick one for you, Bob. Just I know last year, towards the end of the year, you guys had some pricing benefit that helped revenue growth. Just how should we think about the fourth quarter in terms of spreads versus volume growth in the Acceptance segment?

I think – yes, I think you’ll continue to see good revenue growth as we continue to have deeper penetration of value-added services, not only in the small business, but also in the enterprise space. We’ll continue to put up very good growth. And as we said, we expect the full year to be in the high teens. On a year-to-date basis, we’re at 17% organic, so we see another strong quarter ahead of us.

Thank you very much.

Thank you for your participation, everybody. We really appreciate your time and attention. Please feel free to reach out to our IR team with any questions, and have a great day.