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: Clover finds winning formula as it takes on the ‘Apple’ of payment devices

Tucked inside nearly 40-year-old Fiserv Inc. is a Square-like business that’s actually larger than the flashy Jack Dorsey company.


Clover business may not have the same pop-culture cachet as Block Inc.’s

Square unit, but the company has thrived in the market for small-business payment processing by following a different playbook. Whereas Square is known for its self-service sales model and its tight software ecosystem, Clover has found its own winning formula by embracing a vast network of distribution partnerships and taking a more open approach to outside software.

Those familiar with smartphones can think of Clover as playing an Android-like role in the market for small-business payment products, while Block’s Square carries parallels to the more closed-off Apple Inc.
said MoffettNathanson analyst Lisa Ellis. Being the Android equivalent in this market has paid off nicely for Clover, which is larger and faster-growing than Square on the key metric of gross payment volume, or the value of transactions flowing through a payment system.

Fiserv cited $197 billion in annualized Clover payment volume as of its first quarter, while Square’s first-quarter volume would equate to $158 billion on an annualized basis. Clover is smaller than Square by revenue, which Ellis says is due to Clover’s positioning with slightly larger merchants that tend to yield less revenue per transaction.

When Clover was founded roughly a decade back, it was still difficult for small businesses to accept card payments in a way that was transparent and manageable. But now the company has moved far beyond payment processing into software-driven areas of small-business management, with tools for accounting, inventory management, order management, and more.

“There are software capabilities that we now can offer to our merchants in seamless way that really simplifies mission-critical tasks,” said Dan Bjerke, Clover’s general manager. Helping small businesses take care of essential functions at an early stage in their journeys “improves our economics dramatically,” he continued, allowing Clover to develop deeper relationships with its customers and reduce its churn.

“The average revenue per merchant is going to increase because of software and services,” Bjerke added.

Clover intersects with software in a number of ways, including by offering customers its own software, running an app store, linking up with independent software vendors (ISVs), and at times conducting strategic partnerships. The wide variety of software integrations helps Clover appeal to more specialized merchants who are looking for payment-processing services along with more niche tools targeted to their specific industries.

Through its ISV relationships, for example, the company said it is able to cater to businesses with especially targeted needs, such as hair and nail salons, veterinary offices, and field service providers like painters and electricians who do business in clients’ homes.

Lately the company sees big opportunities in the restaurant sector, where Bjerke said that Clover is furthest along in driving adoption of “verticalized” software.

A typical corner bar and grill might do between $500,000 and $1 million in sales each year, and “even at that scale you need specialized software,” MoffettNathanson’s Ellis said, making Clover’s offerings “compelling for small businesses.”

Clover doubled down on restaurant software late last year when it acquired BentoBox, a company that made a digital storefront for restaurants. Now Clover is in the process of integrating BentoBox with its own offering in order to build a stronger omnichannel product managing digital interactions, in-store service, menu management, kitchen displays, and more.

“BentoBox brought forward sophisticated capabilities for digital restaurants that Clover did not have,” Bjerke said. The company is seeing “very good proof points” in the early stages of its integration.

In thinking about software more broadly, Clover regularly considers whether to buy, build, or partner to get the capabilities it desires, according to Bjerke.

“We have great capabilities that we can take to market to accelerate our growth,” he said, but the company realizes that there are always other functions that could fit nicely in the business as well. In many cases the company is able to partner, but Bjerke didn’t rule out additional acquisitions down the line.

“Being in a large-scale stable corporation, we always have the capacity to put capital to work to accelerate delivery of our strategy,” he said. “That’s always an option we consider.”

Clover was purchased by First Data in 2012, before First Data got scooped up by Fiserv in 2019 in a deal that kicked off a merchant-acquiring merger frenzy. Fiserv last summer caught the attention of activists at ValueAct, who were said to push the company to extract more value out of Clover, according to Bloomberg News. That ignited some debate among investors about whether Fiserv should conduct a spinout.

Analysts say that Clover spinoff topic has been put to rest nowadays given a wider understanding of the way Fiserv and Clover complement each other, with Fiserv’s distribution partnerships and Clover’s strong value proposition for smaller businesses.

“They didn’t understand that Clover isn’t separable from the mothership,” Mizuho’s Dan Dolev told MarketWatch. “It’s like saying you could put the heart in one place and the rest in another place.”

Fiserv has partnerships with various banks such as Wells Fargo

and Bank of America
as well as with other vendors like Verizon

and Paychex

that have large direct sales forces. These relationships can be helpful for a product that caters to small businesses, according to MoffettNathanson’s Ellis, because a new business owner can lease a space, contact Verizon about broadband access, and “get directed to a salesperson who will help you with everything you specifically need as small business,” including a potential referral for Clover’s payment-processing tools.

A Fiserv sum-of-the-parts valuation that breaks out Clover amounts to “a fun spreadsheet math exercise,” in Ellis’ view, but Clover’s ability to leverage Fiserv’s scale and distribution network means that “you’d be killing it to separate it out.” That said, she noted that Fiserv’s management team is “presenting more clear, standalone data” on Clover so that investors can more clearly see the performance of what she deems the “crown jewel” of the Fiserv business.

Clover’s Bjerke, a 13-year veteran of Fiserv, predictably agrees that the combination makes sense, especially as Clover eyes international growth.

“Distribution internationally is a struggle and we don’t have that struggle because we have that global reach,” he said. “We’re very bullish about international expansion.”

Ellis explained that building out tech, distribution, and regulatory infrastructure in other markets would take time if done from scratch, but Fiserv, as the world’s largest merchant acquirer, already has those key relationships in a few dozen countries. While the international piece isn’t a major part of Clover’s business as it stands, she sees big potential there down the line.

“The whole concept of having integrated point-of-sale systems is less well developed in other countries, so there’s more white space,” she noted.

What’s more, smaller businesses are a relatively bigger piece of the pie in many other countries relative to in the U.S., where small- and medium-sized businesses make up 70% to 80% of merchant-acquiring revenues because of their added merchant risk and cost to serve, but only 30% to 40% of card payment volumes.

“In other countries, the mix is not that skewed, so the opportunity is very significant internationally,” Ellis said.

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