Could a potential bank charter boost Fiserv?

stock Fiserv (NYSE:FI) fell Tuesday after reporting mixed fourth-quarter results. On this day, the stock price fell about 2.5% and was traded at about $140 per share.

But beyond the short-term volatility, this fintech has promising revenue prospects and a penetration plan that could help in the long term: a special banking charter.

Profit and revenue increase every year

Fintech is a relatively new term, but Fiserv has been a fintech company long before the name became popular. Founded in 1984, Fiserv provides technology that helps financial institutions move funds and process payments. This company is a so-called “merchant acquirer.” In fact, it is considered the largest acquisition of non-bank merchants.

Fiserv had a pretty good year in 2023, with the stock returning 31% that year. The year ended on a mixed note in the fourth quarter, with revenue exceeding expectations but falling short of revenue expectations.

That means Fiserv’s revenue increased about 7% year-over-year for the quarter, to $4.9 billion, and up about 8% for the full year, to $19.1 billion. With expenses virtually unchanged for the quarter, Fiserv’s net income rose 11% year-over-year to $889 million, or $1.45 per share. For the full year, the company’s net income rose 24% to $3.1 billion, or $4.98 per share.

Fiserv stock fell Tuesday due to weak sales, but its overall numbers were very solid.

“Fiserv ended 2023 with accelerated organic revenue growth of 12%, representing our third consecutive year of double-digit growth as our momentum continues,” Frank Bisignano, Fiserv’s chairman, president and CEO, said in the earnings report. .

a rosy outlook

Considering the guidance the company has provided for the next few years, Fiserv’s prospects look bright.

The fintech company expects solid organic revenue growth of 15% to 17% in 2024, which is significantly higher than the 11% to 13% growth it forecast at its Investor Day conference last fall. It also expects adjusted earnings per share to be between $8.55 and $8.70, which would imply growth of 14% to 16% compared to 2023. This is roughly in line with Investor Day’s estimate of 13-17% growth.

The company also expects its adjusted operating margin to increase by 100 basis points to over 40.7% in 2023 and free cash flow to increase from $4 billion to $4.5 billion in 2023.

Commenting on the outlook, Bisignano said, “We are confident in our ability to continue to deliver strong results and plan to extend our 39th consecutive year of double-digit adjusted earnings per share growth.”

Over the longer term, Fiserv expects organic revenue to grow 9% to 12% annually in 2025 and 2026, with annual adjusted EPS growth of 14% to 18% in those years.

To get a bank deposit

While these numbers bode well for Fiserv, a potential game-changer may emerge as the company applies for a special bank charter in the state of Georgia.

The Georgia Department of Banking and Finance provides a special charter for the Merchant Acquirer Limited Purpose Bank (MALPB). Although it has been available for 12 years, for various reasons no franchise acquirer has been able to take advantage of it. However, this may change depending on Fiserv’s pending application.

“The MALPB Charter was created to ensure that businesses engaging in merchant acquisition or payment activities have direct access to payment card networks,” the Georgia Department of Banking and Finance website states.

Although there are some requirements, there are significant benefits to Fiserv receiving charter approval. The key benefit is that you can authorize, clear, and settle credit and debit card transactions in-house instead of hiring a third-party banking partner. This will allow Fiserv to gain more control over its costs and processes and reduce costs.

In a statement to Digital Transactions, Fiserv executives said the company has no intention of becoming a traditional bank and will continue to work with financial institutions that wish to remain acquisition sponsors.

“We are taking this action in response to recent market changes by third-party financial institutions that have traditionally provided access to card networks as sponsor banks increasingly focus on other areas of their business,” the statement said.

Fiserv could receive a decision from regulators this quarter or early next quarter, so more details will follow once it’s approved.

Analysts are generally quite bullish on Fiserv stock, even without Charter. With a reasonable forward price-to-earnings ratio of 16, a rosy earnings outlook, and the potential for a game-changing banking charter, this is a stock to watch.