Vasu Govil

Vasu Govil asked about the level of engagement from bank clients on deploying AI solutions, differentiating between large and mid-sized banks, and the expected speed of traction. He also asked James Kehoe about the margin variability in Q4 and what surprised the company relative to expectations.

Answer

CEO and President Stephanie Ferris noted unprecedented bank interest in AI, driven by a desire to reduce operational costs in areas like compliance, KYC/KYB, and loan operations. She explained that large banks seek real-time data from FIS to build their own agents, mid-sized banks want help building models, and small banks need embedded agents for back-office cost reduction. CFO James Kehoe attributed Q4 margin variability to higher-than-anticipated customer demand for lower-margin output services and equipment, and a slight negative impact from currency rates.

Vasu Govil from KBW asked about the level of engagement from bank clients regarding AI solutions, differentiating between large and mid-sized banks, the expected timeline for AI traction in BNPL, and the factors that surprised FIS regarding Q4 margin variability.

Answer

CEO and President Stephanie Ferris noted high AI adoption interest across all bank sizes, primarily for reducing back-office costs in compliance, regulatory, and operational areas, and enhancing fraud prevention. Large banks seek real-time data from FIS for their own AI, while mid-sized and small banks request FIS to build models or embed agents. CFO James Kehoe explained that Q4 margin variability was influenced by higher-than-expected customer demand for lower-margin output services and equipment, and slightly negative currency rates.

Vasu Govil inquired about the evolving EFT revenue mix, specifically its diversification away from the ATM business, the envisioned mix in two to three years, and the impact on the segment's margin profile over time.

Answer

Chairman and CEO Mike Brown clarified that the 'ATM business' includes both owned ATMs and banking infrastructure deals, which are long-term contracts. CFO Rick Weller stated that the ATM business is currently slightly less than 20% of consolidation and is anticipated to be around 13-14% in several years. He expects the mix to shift towards digital strategy, infrastructure support, acquiring, and issuing (like CoreCard), leading to an improving margin structure for EFT. Current operating margins are just over 20%, with acquiring in the 25% range and issuing in the 40%-50% range.

Vasu Govil from KBW inquired about the underlying macroeconomic assumptions supporting Euronet's 10%-15% EPS growth guidance for 2026. He also asked for details on the current EFT revenue mix, its projected evolution over the next two to three years as it diversifies away from the ATM business, and the expected impact on the segment's margin profile.

Answer

Chairman and CEO Mike Brown stated that the 10%-15% EPS guidance is based on their forecast, acknowledging potential positive and negative factors throughout the year, and expressed confidence given their five-year track record of double-digit EPS growth. Regarding EFT, Mike Brown clarified that diversification isn't just 'away from the ATM business' but also includes a shift towards banking infrastructure deals for ATMs, which are long-term contracts less sensitive to cash usage. CFO Rick Weller added that the ATM business is slightly less than 20% of consolidated revenue and is anticipated to decrease to 13%-14% in several years, with growth increasingly coming from digital strategies, infrastructure support for banks, acquiring, and issuing (like CoreCard). He projected an improving margin structure for EFT, with operating margins currently just over 20%, acquiring in the 25% range, and issuing in the 40%-50% range, leading to better overall EFT segment margins over time.

Vasu Govil inquired about the specific factors contributing to the slight softness observed in the EFT segment, seeking clarification on whether the weakness was concentrated in the ATM business or merchant acquiring, and if it was due to transaction volume or value slowdowns, especially given solid European travel trends but altered spending patterns. He also asked for more color on the money transfer segment's performance, particularly the deterioration in August and September after a strong Q2 and improving July trends, and the current exit run rate in October.

Answer

Chairman and CEO Mike Brown explained that consumers are being more cautious with vacation spending due to increased costs for hotels and flights, leading to less discretionary spending. This softness was more pronounced in the ATM business, though also present in merchant acquiring. For money transfer, Mr. Brown noted choppy trends, with October showing stronger performance than September, and highlighted Euronet's outperformance against a declining market, particularly in the U.S. to Mexico corridor. CFO Rick Weller added that the company is being cautious but is currently beating its Q4 forecast.

Vasu Govil asked about the slight softness in the EFT segment, seeking clarification on whether the weakness was concentrated in the ATM business or merchant acquiring, and if it was due to transaction slowdown or value slowdown. He also inquired about the money transfer segment, specifically the deterioration in August and September after a strong Q2 and July, requesting color on the exit run rate, October trends, and what factors changed.

Answer

Chairman and CEO Mike Brown explained that consumers are being cautious with vacation spending due to higher costs and global economic worries, impacting ATM usage more than the rapidly growing merchant acquiring business. Regarding money transfer, Mike Brown noted choppiness, with October showing stronger trends than September, and highlighted Euronet's outperformance against the market, particularly in the US-Mexico corridor. CFO Rick Weller also contributed to the discussion on money transfer.

Vasu Govil from KBW asked for comments on the competitive environment, particularly regarding other providers targeting paycheck-to-paycheck consumers with short-duration loans, and any perceived changes in competitive intensity.

Answer

Mark Troughton, COO, clarified that Chime's primary competition remains large banks, as Chime is significantly larger than all other fintechs combined in primary account relationships. He noted that while some smaller fintechs offer liquidity services, their price points are far higher than Chime's SpotMe or MyPay. Despite some members using additional third-party services, Chime's position at the top of the repayment stack and competitive rates ensure these offerings are not impacting Chime's acquisition of primary account relationships, as evidenced by J.D. Power's findings.

Vasu Govil from KBW inquired about the competitive environment, specifically regarding third-party providers targeting paycheck-to-paycheck consumers with short-duration loans, and any changes in competitive intensity. He also asked about Q4 seasonality for new account ads versus volume growth.

Answer

Mark Troughton, COO, clarified that Chime's primary competition remains large banks, as Chime is significantly larger than other fintechs in primary account relationships. He noted that while some fintechs offer competing liquidity services, Chime maintains a superior position due to its lower pricing and top-of-repayment-stack advantage, without impacting primary account acquisition. Matt Newcomb, CFO, explained that Q1 and Q2 typically show the most seasonality due to tax refunds, while Q4 sees slightly higher spend around holidays but is otherwise a standard quarter for active member and purchase volume growth.