Hello, everyone. Welcome to WEX's Benefit Investor event. Thank you for joining us, both here and in person and online virtually. We have a number of folks virtually. I'm Steve Elder, head of investor relations at WEX. I'm sure I know just about everybody in the room. We're really excited today to present to you our Benefits business and give you a much closer look at it and its position within the WEX portfolio. I'm not gonna read the forward-looking statements, but you should, and you should look at them, either here on screen or they're also in the presentation, which is on our website. Let me quickly walk you through today's agenda. First, you're gonna hear from Melissa.
She'll provide an overview of the Benefits business and its position within the WEX portfolio. You'll hear from two of our longtime Benefits leaders, Lisa Goldkamp and Chris Byrd. They'll discuss the strategy in more detail, as well as the end users, the customers, products, go-to-market, and anything else that you guys ask. We'll have Jagtar Narula, our CFO, come up and discuss the financial profile, and then we'll open it up for Q&A at the end, both for folks who are in the room as well as virtually. Before we pass it off to Melissa, we're gonna tee up a real quick video, and then we'll start in.
At WEX, we're dedicated to providing a comprehensive, growing range of services to our customers. Benefits is a key component of our offerings, complementing our mobility and corporate payments verticals and expanding our market reach. The integration between these three is what makes us stronger. Inside the Benefits platform, customers and partners can seamlessly manage the various aspects of an employee's benefits, track their enrollment, spending accounts, COBRA, billing, and more, all from a single, user-friendly interface. We're streamlining the administration process and making life easier for millions of employers, benefits consultants, HR professionals, and participants. It's a comprehensive solution that simplifies the benefits process for more than 60% of Fortune 1000 companies and provides support for more than 20 million SaaS accounts. It's a vital part of our ecosystem of solutions. Picture a company utilizing WEX's solutions for mobility management, streamlined B2B transactions, and efficient benefit administration.
This seamless integration allows businesses to focus on what truly matters, their core operations and growth. WEX thrives on the connectivity of our solutions. Benefits is an integral part of our growing portfolio of services aimed at simplifying the business of running a business.
Well, thank you all for being here, both virtually and in person. I'm really excited to be able to kick this off today, really excited about the Benefits business. Many of you, all of you here in the room, certainly know a lot about the WEX business. Today we're gonna talk about the Benefit business because it is a growing part of the business. It was over 20% of our business last year. We think it is not as well understood as we'd like it to be. We're gonna go a little bit deeper today. I want you to have four key takeaways from this conversation today. First, great strategic fit. Second, we're in this large and growing market. Third, we have a winning formula within this business.
We have a great history of winning, and we have a lot of confidence of that going forth. Fourth, we have a really strong business model, which is based on a SaaS-based, recurring revenue stream. You're going to hear more about all of those things today. If you step back in a moment and let's talk about WEX, we have built a tremendous global commerce platform. We've done that by being very intentionally focused on the underlying technology and being very focused on the products that we offer across the portfolio. You're going to hear a lot about those trends today, specifically for the Benefits business. That's true if you look at any of the very big, complicated, growing markets that we serve, whether that's mobility, whether that's corporate payments, or we're going to go deeper in today in our Benefits business.
At the core of all that, what we're really focused on, our purpose is to simplify the business of running a business. That is our North Star. It's what we think about every time that we roll out a new product or service e-experience into the marketplace, and it drives the decision-making that we have each day. Whether that's for a mobility customer that happens to have a vehicle and they have employees out in the field, or if you're a corporate payments customer, where you're thinking about how to purchase items, often globally, in the most efficient way, or in this case, the more than 20 million consumers that are ultimately using our products, either directly or through a partner. Those consumers are looking to us to help make better decisions around the choices they're making.
If you look at WEX, the Benefits portfolio, what that adds to us is a wonderful growth engine. It makes sure that where we're thinking about growth, it's grown through any cycle, including the pandemic. It also creates a natural hedge within the rest of the portfolio that we have from an interest rate perspective. From the Benefits business, I'm gonna talk a lot more about the investments that we've made, but we've made a tremendous number of investments over time, which has led to a much stronger growth profile. We also have access to our 500,000-plus customers in the North America business alone, and so we think that we're just tapping into an even bigger opportunity there. We started this business in 2014, and we started with the acquisition of a company called Evolution1.
Evolution1 brought us into consumer-directed healthcare products. At the time, we assessed the TAM of the marketplace to be $1 billion. We very intentionally have expanded our product capability, we've extended our revenue streams, and we've extended our distribution channels over time. In 2015, we purchased Benaissance, which added COBRA capability and billing capability. In 2019, we added distribution capability through the acquisition of Discovery Benefits. In 2021, both organically and through the acquisition of certain assets from a healthcare bank, we added a new revenue stream and the ability to be a custodian. In 2021, later on, most recently, we acquired benefit administration capability through Benefitexpress. With each of those acquisitions, we've been very thoughtfully and methodically integrating to create a great customer experience.
Again, with this idea, an eye towards, we've got a global commerce platform that we're offering out into the marketplace, and across that platform, we've had almost $200 billion worth of volume running through it last year alone, and that number just continues to grow. The offerings we have in the marketplace right now, we believe, has a $10 billion TAM. If you think about that, from 2014 to today, we have 10 times the TAM opportunity because of the series of choices that we've made and through the organic growth that we've had. You look at a portfolio, we've grown since 2014 on a compounded annual growth rate of 25%. 15%+ of that was organic.
While I've talked about a number of acquisitions we've made along the way, one of our core strengths that we have is continuing to grow the business organically as we pull it together for one WEX. We feel really excited about our future growth capability, not only we have a wonderful track record, but if you look at the market itself, it's growing 9%-12%. If you package this all together, this has become more than 20% of our business, more than 20% last year and growing this year. Really excited about the benefit business and how we're continuing to grow that. I'm gonna have Chris and Lisa come up here and talk about that more in depth, that they have lived this business. When we acquired Evolution1, they were part of the team that started this business.
Think about the fact when we acquired that, it was $85 million worth of revenue. Last year, it was over half a billion dollars. They've have a great track record of growth behind them. I'm really excited to turn this over to Lisa and Chris. Yeah.
Thank you, Melissa. We are here to give more information about why Melissa is so enthusiastic about the benefits segment of our business. This includes providing more information about our end users, our customers, our products, and our growth strategy. I'm Lisa Goldkamp. I am the GM and the Senior Vice President of our benefits business, I've been with the organization for over 17 years.
I'm Chris Byrd, and I was one of the cofounders of the business over 20 years ago and have played a leading role in guiding the business, particularly from a strategy perspective, to where it is today.
We thought it would be helpful to provide a brief overview of our product offerings and our scale as a place to start. With our other segments of our business, we compete from a position of strength as a market leader. You saw on the slide that Melissa presented, we serve approximately 60% of Fortune 1000 employers. We've built a business with a wide breadth of capabilities, but at the core of everything we do is our SaaS technology. Our technology is the record-keeping platform across a wide variety of products. We've built a powerful platform. Simply put, it's a platform that tracks account activity, and that account activity could be enrollments, could be balances, and it could be payment activity as well.
Perhaps more importantly, we provide our end users with a great experience, intuitive experiences, and that includes our consumers, our employers, and our partners. Technology is at the backbone of everything we do, and that is consistent regardless of how we distribute our products. We'll talk more about distribution a little bit later, but technology is at the heart of what we do. We also help employers manage complexity. We help them provide a wide range of meaningful choices to their consumers, and we help them manage the cost of delivering those benefits. We also help participants navigate and manage the complexity of the benefits that they're being provided. Our products fit into a few different categories. For example, consumer-driven benefits. Consumer-driven benefits includes benefit accounts. Those benefit accounts include things like health savings accounts or HSAs, flexible spending accounts or FSAs.
It also includes accounts like lifestyle spending accounts, Medicare Advantage accounts, and even commuter. For example, we have 7.5 million HSAs that reside on our platform. Consumer-driven benefits also includes our billing and payments capabilities. Our COBRA solution allows consumers to continue their benefits coverage, their health coverage, for instance, if they separate from their employer. This is required for employers that have over 20 employees. Our billing and payments capabilities allow people like folks on leave of absence or retirees, the ability to pay premiums in a simple fashion. We have benefits administration. We've built a modern, scalable platform that allows individuals to enroll in their benefits. Those in benefits could be health and dental benefits, it could be retirement benefits, voluntary benefits. It could be even the benefits that I just described in terms of spending accounts.
We also have embedded decision support along the way to help individuals with those decisions. From a compliance perspective, we provide Affordable Care Act reporting and benefit eligibility tracking, and we can bring it all together through integration from an employee and employer perspective, through payroll and carrier integrations as well. Additionally, we are an HSA custodian. In fact, we are the 6th largest HSA custodian, according to the Devenir Year-End Research Report. We have $2.2 million of the $7.5 million HSAs on our platform are in our custody, and within that, we have assets under management of $4.9 billion as of the end of Q1. Underpinning all of this is our scalable technology. We are a technology provider, we are a service provider, and we are a custodian.
Now, as a technology provider, we take our role as a product innovator very seriously. Employers, along with the employees and dependents that they provide benefits for, are our target audience. Our solutions provide support by managing the complexity and the cost of benefits. We also help to simplify the process for the consumer, the employer, as well as the administrator. We are here to ensure that they have an exceptional experience, particularly for consumers, when they select benefits, when they use benefits, and when they pay and save for healthcare. We want that to be powered by the latest technology, including artificial intelligence. We want to ensure that employers and HR professionals have what they need, including the tools and analytics that provide insights.
We think that we are uniquely positioned to provide this through our vast data set, and we can provide our ecosystem with personalized user experiences that allow them to make the next best decision about their benefits. We do this through our technology, and we do this through our wide range of benefit choices. Let me give you a few examples of how this might happen. From the first time an individual is offered benefits and beyond, this is what we refer to as the hire-to-retire continuum. The first time someone gets a job, they go, and they enroll in benefits for the first time, and WEX could be powering that experience. Perhaps part of that process, they make the decision to enroll in an HSA for the first time, and they begin funding their account.
Over time, their balance in their HSA is going to grow, and the way that we interact with them during that time is going to evolve as well. This continues through different milestones. The individual gets married, they increase their HSA contributions. They use our technology to make life event changes through our platform. They also might enroll in a lifestyle spend, or, I'm sorry, a limited purpose FSA at some point, and they can use that account to pay for eyeglasses. Along the way, from those small milestones and those big things, we are there. Perhaps they're at the pharmacy, and they use their mobile app to scan an item to see if it's eligible based on the benefits that they've been provided.
They may be using their debit card at the doctor's office to pay for out-of-pocket expenses all the way through retirement, and then even at retirement, we can help them as well. They may pay for their retiree premiums through our technology, and they could use their Medicare Advantage spending account using our technology as well. We feel that this is a huge differentiator for us. It allows us to influence and deepen the customer relationships through the entire employee life cycle. Now that you've heard a bit about our products and how we provide value to our target audiences, I'm going to turn it over to Chris, and he can talk about the favorable market that we play in and why we win.
Thank you, Lisa. Lisa's done a really good job of explaining what it is we do. I want to take a step back. I want to talk about the market that we play in and some trends in that market, why we think that those trends really are going to drive continued growth in our business, and also talk a few minutes about why we're positioned to win, how we win, and why we win. Three things I want to start with. The first is rising costs, the second is the importance of choice, and the third is these two market tailwinds providing two paths to growth for us that we believe is faster than the market. Let's start by talking about rising costs. The fact is that the American consumer is subject to increasing costs, has been, and will continue to be. It's just the market.
In fact, independent surveys indicate that nearly 90% of all people enrolled in an employer group health plan today have a deductible, a general annual deductible. If you're an individual, the amount of that deductible is over $1,750, up 60% in just the last 10 years. Rising costs therefore drive the need for the products that we run on our technology and that we power and that we administer. You can see the graph here shows you the growth rate of just one of those products, health savings accounts. A compound annual growth rate of 10% in accounts, but an even faster growth rate of 17% in assets, reflecting the fact that those accounts have to pay for more and more and more every year. The second thing is choice.
Employers are competing fiercely for talent in a very dynamic and tight labor market. Increasingly, employers understand the need to attract, retain, and motivate a diverse workforce. What does that mean? One size doesn't fit all. Employers are asking for more and more benefits so that they can offer a wider range of choices to that employee base. That plays to our strength. As Lisa mentioned a few minutes ago, our technology has been built from the ground up to handle multiple different kinds of benefit plans and interact seamlessly across those plans so that the user has a very intuitive and easy-to-navigate experience. If you look at the growth profile of this business and why we are confident that it's going to continue to grow, there are two paths to growth. The first is taking market share.
We have been taking market share. We've demonstrated that by growing faster than the market. You'll see some other statistics in a few minutes on that. There's a second, perhaps less obvious path to growth, and it is unlocking the opportunity within the employers who are currently on our platform. The fact is that not everybody who can have an account decides to enroll in one, and those who do, don't always use them as fully as they should. Using our massive scale, our AI, our data analytics, we can reach those individuals and guide them to choices that will not only be good for them, but also good for our business, which is a great place to be. Why do we think we're well positioned to win? I'll give you four reasons. The first is, as I said, choice.
Increasing choice and increasing array of benefits means greater complexity. We love complexity at WEX because we manage it extremely well, this plays to our strengths. Our technology is built so that it's very configurable. Why is this important? This is important because the market's demanding new products. They're demanding new benefits. We can bring them out very quickly. We can be ahead of the market, we can be in the first wave, and we can respond to market demands very quickly, and we've have a long track record of being able to do that. In addition, technology needs to be scalable. It is table stakes in our business today, at 20 million accounts, our technology is well proven at scale. Also with scale comes data, lots of data, I mentioned that just a minute ago.
Our ability to mine that data and gain insights that are relevant to the administrator, to the employer, in terms of how their employees are engaging with the accounts, and importantly, consumers, to help them better understand and utilize their benefits as they move on their journey through their life. Technology, as Lisa mentioned, is at the core of everything that we do. Everybody we do business with uses our technology platform. Sometimes they use technology and payments, and they take care of the rest, but we have the ability to layer on lots of different options of service on top of that, and we can be highly flexible. You want us to answer the phones? We'll answer the phones, white label. You want us to pay claims? We'll do that. You want us to do any kind of combination.
What that allows us to do, if you think about business opportunities that exist out there in the market, that allows us to listen and then respond by packaging a solution that really meets the needs of that particular audience or that particular company. The last is harking back to Melissa's slide about how we've thoughtfully built the business over the years, is we have an unmatched breadth of product offering. There really aren't many, if any, companies in the business that can do everything that we do. In fact, I would argue that there's nobody that can. This is really important for a number of different reasons. One obvious reason is that if an opportunity arises in the market, there's a better chance we've got one or more products that are gonna answer the requirements of that opportunity.
It certainly gives us more cross-sell opportunities. Also, increasingly, we are finding in the market that whether it's an employer or whether it's a partner, they are looking for one-stop shopping. Why? You have to be able to seamlessly coordinate all these benefits for the best user experience. These are four reasons why we win. The fifth reason is a little bit different, but it's really important. I want to land this with you. I'm going to hand it off to Lisa to go deeper. We have a really unique distribution model. Nobody else in the market can do it. We have lots of different ways we distribute. We distribute directly, we distribute through partners.
What this does is this gives us hundreds of points out into the market and allows us to be a candidate, either directly in front or behind the scenes, in more opportunities and in more of the people vying for that business. There's a bigger chance that we're gonna have a horse that's gonna win that race. As we like to say, more roads lead to WEX than to anyone else. This is vitally important as a distinction in our business strategy, and so I'm gonna pass it back to Lisa to go a little bit deeper into this.
Thank you, Chris. We do feel that distribution and our breadth of distribution is a really big competitive advantage. It gives us more opportunities to reach the customer, like Chris said. We have two main channels. We have our Benefits by WEX channel, and we have our Powered by WEX channel. Our Benefits by WEX channel is just as it sounds. It's a WEX-branded solution in the market, and the way that you might arrive at that channel is through our vast broker and consultant network, so referrals from people like Aon or Willis Towers Watson. You might arrive through a referral partnership. We have a number of strategic partners that have distribution, but they don't offer these products and services, and they're looking for a trusted partner that they can refer them to.
The last is through simply direct procurement, so think about public sector, people that are going out to an RFP. Our second distribution channel is our Powered by WEX channel. Through this channel, we are offering a private-labeled solution to our partners, and we're talking about some of the biggest brands in the market. Our partners are health plans, they're financial institutions, they're HR and benefits technology providers, such as payroll providers. They could be third-party administrators. At the core, everything is powered by the WEX products and services that they trust. Our partners, they often wrap some of their own capabilities around the technology that we're providing. They also might bundle it with other products and services that they provide.
What this does is it gives employers and HR decision-makers more opportunity, more choice, and the ability to select what meets their specific benefit needs, and we think that is a huge win. Our breadth of flexibility and our scale is really what those HR and benefits decision makers are looking for, particularly with large employers. Whether they're getting to us through our partners or through the expansive broker and consultant channel, we are proud that we're powering those experiences. Everything is WEX-owned, and our tech has been uniquely built, like Chris said, for configurability and scale. We are super proud of the business that we've built. We're really excited about the future, and we're really proud of our unmatched distribution. You've heard about how we differentiate through our distribution channel.
Now I'm going to pass it on to Jagtar, who can talk about our financial profile and how we monetize our business.
Thanks for joining us this afternoon. I'm Jagtar Narula. I'm the CFO of WEX. As you heard from Melissa, you know, this has been a great business for us. We got into this business about a decade ago, through an acquisition, of a company, about $85 million in revenue at the time. This business has now grown to, a quarter of our business. It's been our fastest-growing, business segment, and it's a segment that we expect to continue to be our fastest-growing business segment, so we're very excited about it. I'm excited to take you through the details of the financial side of the business. What I thought I'd start off with was an overview of the financial model of the business, and how does this business make money?
At its core, in the first column that you see here, it's a SaaS business, software as a subscription, right? We charge our clients based upon the number of participants on the platform. We charge them a per-client fee that's recurring in nature. Typical, very typical software, subscription-based business model. That revenue stream represented about 65% of the revenues of the benefit segment last year. That stream also drives additional revenue opportunities for us that we have in the next two columns in this slide, right? The second column is basically the interchange fees we generate, right? If you are a participant, you have an account that you have in our platform, you'll get a debit card, right? You'll use that debit card to make qualified healthcare purchases, products, and services, right?
That purchase volume, we process that transaction, we earn an interchange fee, right? That's the second component of our business model. The third component of our business model, and it's something we just got into in the last 2 years, is acting as custodian of assets that those participants have in our platform, right? If you are a participant, right, you're paying through the WEX debit card, you are also making deposits of assets into an account that we're managing through our platform. In many cases, we are the custodian for those assets, and when those assets are cash, we basically earn a fee by investing that cash and generating money off the yield, off of interest. That could be through a third-party institution. Increasingly, that's done through WEX Bank.
I'll talk about that more in a minute. The summary is, you know, we earn revenue largely in three ways in this business, right? Recurring SaaS-based, subscription-based revenue, two-thirds of the business, are an interchange-based fee, that's basically based on the purchase volume, and then, a yield off of cash balances when we act as the custodian. Okay? Let's dive a little bit more into the SaaS component of the business model here. As I mentioned, this is a very typical software-based subscription business model. Lisa and Chris talked earlier about our product portfolio and the very robust product portfolio that we have here, right? We have really do have a leading solution in this market, and we have leading distribution channels, very broad market coverage.
We have many ways to touch the ultimate end customer, right, and very many opportunities to win. The combination of a leading technology and the distribution is very synergistic. It essentially creates a flywheel for us, right? A flywheel that really drives a very, very efficient sales process. One of the ways that software companies or subscription software companies track the efficiency of that flywheel is through a metric of lifetime value to customer acquisition cost. Many of you, I'm guessing, have followed software companies, may already know this metric, but for those of you who don't, let me just talk about it for a few seconds. This metric, again, it's intended to look at how efficient you are at selling and distributing your products, right?
What you basically look at is: What's the lifetime value of the customer to me as an organization, right? I bring a customer onto that platform. It's a recurring revenue stream, and I expect that customer to stay with me for a period of time. What's the lifetime value over that time that I expect the customer to stay with me? What's the total gross margin that I expect to earn with that customer? I compare that to what is the cost of acquiring that customer, or what was the sales and marketing expenditure that I had to make to acquire that customer? That's a simple ratio, lifetime value to customer acquisition cost. The general rule of thumb that you'll hear in the software or SaaS world is you want about a 3x return, right?
The cost of acquiring a customer against that lifetime value, you want it to be north of 3 x. As you can see here, we're north of 8 x, right? That really, that solid number, basically indicates that we are getting solid returns on acquiring customers. It represents the efficiency of that flywheel, okay? I will add, that really does put us amongst the top tier of software companies. That is a very good metric that we're proud of. One of the reasons that that metric is so good for us is our retention rate, right? We put a lot of effort in making our customers happy. We talked about the leading robustness of our solutions. We have service operations.
We're taking care of customers, driving customer satisfaction. As a result, we renew at 95% plus our renewal rates, our revenue renewal rates. Again, a number that we're particularly proud of, 'cause not only does that drive that very solid lifetime revenue, but it also means that when we're going out and selling every year, we are, you know, we're growing the business, right? We're not selling to replace customers that we lost. We're adding customers to continue to grow the business. The last thing that I would add about this slide, in our LTV to CAC metrics, is this is us looking purely through the lens of what I consider the SaaS part of our business, which is the recurring subscription revenue and the interchange revenue.
What we don't include in lifetime value here is us acting as custodian of those HSA assets, which does come when we acquire customers. If we were to add those in, that would actually be incremental to what we show here. Really a compelling set of economics. Let me talk a little bit more about the HSA cash that we act as custodian for. You may have seen a number from Lisa earlier, where she talked about us acting as custodian for $4.9 billion of assets. Of those $4.9 billion of assets, a portion of that is cash, and you can see here, the latest quarter, that was about $3.7 billion.
We got into this business a couple of years ago when we acquired basically this business from one of our partners, where they were acting as custodian. You can see that we've grown cash assets under management over the last couple of years. The first question is: why WEX? Right, why is WEX in this business? You know, this, when we acquired these assets, the cash was held largely at third-party depository institutions, where the partner and then us were earning, you know, interest fees off that cash. As it turns out, WEX owns a bank, right? We have the ability to earn a higher rate of return because of our bank and our ability to invest those cash assets directly.
One of the things we've been doing is moving that cash directly onto the WEX balance sheet. You can see the light blue lines in this chart. We've been making that transition over time. The amount of cash directly on the WEX balance sheet has been increasing. Again, like I said, that gives us the ability to earn a higher rate of return than what's off balance sheet that's managed by third-party institutions. We move that cash onto our balance sheet. We have a team of investment professionals that invest that into debt securities, right? Those investment professionals working with third-party consultants. What we aim to do is to develop a very fundamentally sound, well-managed portfolio and manage our risks. We aim for a fairly short duration, right?
We, our target duration is four years. We're not taking a lot of duration risk, not a lot of interest rate risk, not a lot of liquidity risk, right? Manage that duration appropriately. We also invest in high-quality securities. We target investment-grade securities. Our average portfolio target is AA, very high investment-grade securities. Again, don't want to take a lot of credit risk, right? We also aim for a very diversified portfolio. At the end of Q1, our portfolio was made up of north of 250 issuers. About half of the portfolio was again, investment-grade corporate debt, municipal debt, and treasuries. That's about half of the portfolio. The other half of the portfolio was represented by asset-backed securities, residential mortgage-backed securities, and asset-backed securities.
Again, aiming for high investment grade. Again, you know, summarizing, short duration, high credit quality. The other thing I'd mention about this, and it's something that we've talked about in a number of earnings calls, is that us getting into this business has actually had synergistic effects, 'cause it's helped us balance interest rate risk across our portfolio. We have other parts of our business that are negatively impacted by higher interest rates, right? If you think of our fleet business, we carry operating debt through the Bank, that funds the receivables that are part of the fuel card, right? As interest rate rises, that's additional cost to that part of the business. We also carry corporate debt, that, you know, a portion of that corporate debt is floating.
Again, interest rate rises, that's a negative impact to the business. This part of the business is actually positively impacted by interest rate rises, right? HSA balances, as those securities mature, we're able to reinvest at a higher interest rate. We also carry a portion of the balances, and it's highly liquid, and therefore, they therefore floats. What that's done for us as a business, and we've talked about this again, in earnings calls, is it's driven us more sort of net neutral from an interest rate perspective, right? Changes in interest rates have become increasingly net neutral for us when you look across the total business portfolio, and that's been very positive for us. Talk about the trajectory of our business.
We have had a very strong trajectory of growth in this business. If we go back to revenue growth over the last five years, we've seen 28% compounded annual growth rate, and that's been the result of really the business model that I've talked about, right? We've acquired more participants in our platform, from which we earn more and more recurring revenue. Those participants also drive purchase volume through the use of the debit card, drives interchange fees. Those participants, as of late, now, you know, we've taken over cash management of, as custodian of some of the cash in their accounts. You know, we've expanded the portfolio through acquisitions as well. Very strong growth over the last five years.
At the same time, we've also grown operating income, and as you can see, our operating income is actually has outpaced revenue growth. You know, we manage this very closely. We aim to reinvest in the business, right? We've expanded technology investment, we've expanded sales and marketing over the last few years, but we've also get the benefits of scale and increasing margins to the business. That's actually something that we saw in the first quarter this year. If you looked at operating income margin in the benefits segment, it actually increased 10 points, or 1,000 basis points, Q1 2022 to Q1 2023. Now, a portion of that, a large portion of that, was us entering the custodial managing the HSA custodial cash assets.
That part of the business tends to, you know, tends to drop through at pretty high margins. You know, we earn that interest revenue, and not a lot of expense associated with it, so it drops through at high margins, and we've been helped by higher interest rates as well. If you exclude that part of the business and look back at that core SaaS revenue and the core SaaS part of the business, that actually increased in margins about 100 basis points year-over-year. That's really the benefit of the scale of the business. The business continues to grow. It drops more through to the bottom line, and it's, and that's how we intend to manage the business. Talk a little bit about long-term growth.
Hopefully, you've seen, as I've gone through these slides, the business model that we aim to drive and the success we've had in this business. As a result of what I consider this very robust business model, we think it positions us well for long-term growth, right? We continue to invest in our platforms. We continue to want to have the leading solutions in this market. You know, we talked about those tremendous LTV to CAC ratios. One of the best benefits of an efficient sales organization is that, you know, we have to invest in less in sales. We can therefore put more towards the product. It creates, you know, keeps us on the leading edge of the product investment.
The things we're investing in, the things that Lisa talked about, you know, looking at the front end of the process, looking at, you know, one of the things that our customers ask for us a lot from us, is helping those participants make those decisions, right? That's the area that we're investing in, helping them make decisions about what benefits to sign up for. You know, should I get an HSA account? How much should I put in that account? What should I invest in? Those are increasing functionalities that we're investing in that really, I think, positions us as cutting-edge and will help continue to keep us as leading edge of the market. At the same time, you know, we talked about our multiple channels, right?
Again, that symbiotic relationship, we have those multiple channels, gives us multiple opportunities to win. We get that benefit not only from the different channels that Lisa talked about earlier, but also increasingly the cross-sell channel, right? This has become something we've talked about in the last couple of earning calls. We are increasingly focused on cross-sell within the existing hundreds of thousands of customers that WEX has. You know, we're still in the early days here, but I think we will see this as a continued momentum in the future of the business. The last piece of this, and the third leg of the stool, is the scale, right? As this business continues to grow, we will continue to deliver increasing operating margin improvement to the bottom line, right?
As the business grows, we have a couple opportunities for that operating margin improvement. One is just the size of the business and the scales of the business. You know, you don't need to increase technology investment for every dollar that you invest, so more and more drops to the bottom line. In addition, as we grow the business, we get increasingly good returns just on automation within our customer centers, improving the customer experience. Again, that will help us drop more and more to the bottom line. That's the third leg of the stool that we're growing, going after. How do we do this? You know, the chart here talks a little bit about the growth drivers, the growth drivers are gonna sound pretty familiar, right?
We want to focus on continuing to add new partners, right? Working with our partners, adding new participants, right? Those new participants will drive recurring revenue fees, right, drive card usage, drive investments of cash into accounts that oftentimes will become custodian over. What you'll notice here is that sounds pretty familiar, right? That is, that is a notion that we've done, we've done for the last 10 years, right? We're not talking about doing anything new to grow our business. We think using the commercial motions that we have and that we are quite experienced with our leading products, with our excellent distribution channels, we will continue to grow at or better than the market, right? We're pretty excited about that.
Let me end this with, you know, how do we think about the growth from a numbers perspective? When we started the year, we gave guidance about what we expected from the benefit segment for 2023, right? We basically said we expect 25%-30% growth from the benefits business year-over-year, right? You know, today, you know, if we look at Q1, we saw exactly put us on track for that trend, right? We had tremendous participant growth in Q1. We've had tremendous growth of that custodial revenue from the growth of our custodial business, and that has positioned us to deliver the 25%-30% growth that we're expecting out of this business this year. We're excited about that.
Over the long term, we've talked a number of times in the past of our expectations of 15%-20% growth of this business. We continue to expect that, right? We are well positioned. We are the leaders in this market. We're very excited about this business, and as I look at this business, right, I look at what Lisa and Chris are doing, you know, this 15%-20% growth is continues to be achievable for us. We're very excited about it, and we continue it to reiterate that as our long-term guidance. That ends the prepared remarks for the session.
We're going to do some Q&A now, so we're going to take, 30 seconds, I think, to set up, and then I'm going to invite my colleagues up on the stage, and we're going to take some questions from the audience as well as folks online. Thanks, Steve.
Just a little logistics. We do have somebody who will be running a mic around for the benefit of the folks online. We'll have everyone here. Let me open it up. Would somebody like to break the ice and ask the first?
Thanks. This is Steven Kwok from KBW. My first question is just around the $1.4 billion that's remaining in that third-party non-WEX banks. Like, what's the timeframe of being able to bring that onto WEX's balance sheet? Are there any gating factors that's preventing that from happening? Just how should we think about that?
Yeah, I'll take that. No real gating factors. We've, you know, we've done some work with our —one of the first challenges we had after I joined the company, as we were moving this cash over, was our rating agencies, 'cause, you know, they didn't quite understand the business, and we've spent the last kind of six months to a year kind of educating them on this. You know, they see our deposits, they consider that debt, not fully understanding the assets we're investing in. We've solved that hurdle, but, you know, we kind of are measuring the pace of it over time to make sure that, you know, the rating agencies fully understand what we're doing.
The other piece of it is, of that $1.4 billion, a portion of it we have in term deposits, about $500 million of it. You know, we'll leave that and, you know, and consider moving that over as those term deposits mature. Another portion of it, we basically manage for liquidity balances. You know, looking at kind of the operational characteristics of, you know, are participants actually spending money? We maintain a portion of it as liquidity balance, you know, we will continue to move money over time. You'll see that balance on the WEX balance sheet continue to build.
Got it. My follow-up question is around on the M&A front. You've been making a lot of acquisitions within the benefits space. Just curious as to, are you seeing any other additional opportunities, given that your leverage ratio is towards the lower end of your target?
Melissa, obviously.
Sure. If you look across the business, so we are, you know, and have been very active from an M&A perspective, and the things that we're really focused on are product extensions. We've been really weighing where we build, where we buy, where we partner, and it's even more actively right now in the marketplace. We're also looking at scale plays, and less important to this business, but geographic extension, so that we've got a pipeline, we continue to have a pipeline. This is a business obviously we're very focused on. We, at the same time, feel really good about our existing product capabilities, so we have the ability to be patient as we're looking for assets, for those that fit both strategically and our financial criteria. Yes, we're interested, we are active in the marketplace. We're being very thoughtful and methodical about the assets we're looking through.
Maddy's running over to the next question. Maddy, we got one in from the side. Chris, probably for you, but cash balances for the HSA accounts seem to be growing. Should they grow faster than accounts over the medium to long term?
That's a great question, and the answer is absolutely, for 2 reasons. One is specific to the market, and the other is specific to WEX. The market, as I mentioned before, people's out-of-pocket healthcare expenses are continuing to go up, so the amount that they need every year continues to go up. They need to keep more in their HSA in order to meet those demands, to manage their money. There's another particular opportunity for us at WEX, and it's this: We were not the first in the game. This is about the only thing that I can say we weren't the first into the game, right? When once we got in, we started to grow very fast, as you've seen.
If you look at industry studies, the longer an account has been open, the more money is in it, and that curve actually accelerates. The oldest of the old accounts, that curve goes like this. As our average account age ages longer and longer and longer, then we will expect to see the growth of those balances be perhaps higher than the market.
I just have a couple of clarifying questions about the, about the balances. Number 1, it includes the figures you presented include investment assets, not just cash and cash equivalents. The second one is, I take it that the only withdrawals from those accounts are either for qualified medical expenses or upon the death of the participant, otherwise, there's an onerous tax penalty.
Do [crosstalk] you take that one?
Analogy should not be to a liquid bank account that, you know, that we think of in conventional terms. Are those things correct?
Yes. Let me start with the first part of the question. I think we presented 2 numbers. $4.9 billion is the total amount of assets that we are custodian over. Of that $4.9 billion, $3.7 billion is the cash piece of it. That's the piece that I talked about from an economics perspective of us earning a yield on. We earn revenue on the other piece of it, but it's a different, kind of, smaller revenue stream. The second part of your question, remind me again. The withdrawals. You're absolutely right. You know, you can only withdraw this for qualified healthcare expenses, or there is an onerous tax penalty. As a result, you know, those deposits have been very sticky.
I mean, if you look at, you know, everything that's been going on in the banking world for the last quarter or so, our deposits have continued to increase. Really, it's the reasons that you mentioned that, about that.
If I can just ask one separate question, which is, what's been the relative growth of the of the white label product versus the WEX-branded product in the benefits realm?
You want me take that? Yeah, we don't break out the delta, the two. I mean, those are both, you know, good businesses for us. They're both growing at the double digital rates that we talked about earlier, we don't break out the exact revenue between the two.
Hi, thank you. This is Mihir Bhatia from Bank of America. First question, actually, I just wanted to follow up on the deposit question about, given they're such sticky deposits, is there an opportunity to use them to fund your card receivables, or do you just earn more investing them in assets versus kind of using ABS and other stuff?
Yeah, I'll take that. Last year, we used a portion. When I first joined the company, we used a portion of them to fund card receivables. I think we had about $500 million funding card receivables. When we looked at it and looked at the rates that we were getting for broker deposits versus what we could earn by investing them, we actually decided to flip those out of earning out of the receivables and onto the investment side. That's something we did at the end of last year, beginning of this year. I mean, it's something we'll always constantly evaluate, obviously, figure out what's the best return of that, but it is an option, but.
There's [crosstalk] no regulatory reason or there's no [crosstalk] regulatory any reason?
No. Yeah.
Okay. Maybe just switching, you did talk about growth with existing customers, and basically, it [crosstalk] sounded like driving HSA penetration with your existing. Can you provide any statistics or examples of that? Like, what's, you know, at best-in-class places, what's the HSA penetration? What is your average HSA penetration? Like, how big is that opportunity, and have you actually succeeded in driving HSA penetration at any clients, or is this more aspirational?
Chris, Lisa, I'm not sure which one of you.
Yeah, I'll start. Then, Lisa, you can jump in. I would say that we're at the beginning of a journey, because we've done a lot of work. First and foremost, we want to understand the consumer, and we've done a lot of work over the last, I would say, 18 months on that. So we understand the consumer. For example, in HSAs, there are seven different types of consumers, and they move from one category to the other, so understanding that. What happens is understanding the words that work, understanding the messages that land, and, I can tell you, people don't think about these accounts, they feel about these accounts, so we've learned a lot about that.
In terms of how we measure this going forward, one thing that we will have more of as we grow our ben admin business is actual visibility into what kind of insurance plan that individual has. If we're not the ben admin provider, we don't often get that information, so it's hard to accurately look at a penetration rate.
I would just add that one of the reasons that we provided some of the statistics regarding how many people are not enrolling in certain types of benefits that they're eligible for, is that, you know, each employer has different benefit offerings that they're providing, and that can influence the penetration rates that they have. If somebody is exclusively offering an HSA compatible plan, we'll obviously see much higher penetration rates than someone that's giving a choice of plans. Then there could, you know, we have a variety of different accounts, like I described earlier, so that will drive a different mix of participation. Those are some of the factors that would involve that, but all of the statistics show that there is a lot of opportunity to continue with that same store growth.
Thank you.
Lisa, I'll take one from the virtual audience here. We've got a couple of questions between the 2.2 million HSA accounts where we're custodian and the 7.5 million that we have in total. Is there a path to move all 7.5 million on to be custodian of? You know, should the 2.2 million trend higher over time?
Sure. Yeah. One thing that I would just like to remind everyone of is through the multi-channel approach, one of the things that we offer through our technology is that some of our partners can be their own custodians. When you think about financial institutions, they're the custody of the assets that are associated with the HSAs, but they're managing and using our technology from a record-keeping perspective. It is unlikely that they would move them to our custody, but we do see strong growth. Jagtar talked about that a moment ago. When we look at kind of our growth trajectory, we expect that HSAs on kind of both our non-custodied and custodied side, will both grow over time.
Go ahead.
Hey, it's Andrew Polkowitz from J.P. Morgan. I wanted to ask a similar question, actually, on cross-selling and go-to-market. Obviously, you've had this benefits asset for about a decade, then you add on an enrollment asset like Benefitexpress. What is the cross-selling motion like, and how do you approach customers from either side, saying, "I have this versus what you're using now?" I just wanted to start with that.
Melissa and Lisa, probably some combination of the 2 of you want to take that?
Why don't I start? Lisa, you can talk about the strategies. At the WEX level, if you remember, we reorganized about 15 months ago, and we did that with the idea that we were going to expose products more across the enterprise, but also cross-sell more. We started with the idea that we're going to move leads back and forth in a more traditional manner. In the background, we've been doing a lot of work on around the automation to make that much more seamless for us. We talked about the fact that we had 60 sales in the first quarter. A lot of those were between our mobility business and our benefits business. Love for you to talk more about, like, how that's happening day to day.
Yeah, it's something we've been focused on, like Melissa said, and we obviously have a rich set of customers that we can potentially cross-sell into. The thing that's been really interesting as we've continued some of that foundational work, and we're actually seeing how this works in action, is that not only are there opportunities at the individual customer level, the customers that know WEX, they trust WEX, they like how we operate, and it's a natural transition for them to add additional products and services, but we're also seeing some opportunities with our strategic partnerships. I talked about how referral partners are such an important part of our ecosystem from a distribution perspective, and we are seeing opportunities that span multiple segments of our business for people to do.
To basically pass referrals in that span a different combination of products and services that we would have contemplated a year ago.
Great, I just had a quick follow-up. Just wanted to ask about COBRA. Obviously, that's an employee that could be rolling off of a customer, but you still earn economics on that. Is there any difference in the economics you earn and how durable that is?
Jagtar, you want to hit that one?
Yeah, the, you know, the subscription rate on COBRA is generally lower than we earn on our, you know, HSA accounts. You know, that COBRA account won't last as long, but it is a nice additional business for us. You know, we like the business, and it does give us some buffer in, you know, in certain economic environments, but it's certainly not as strong as the HSA business.
Thank you so much. My question is on the pricing front. Just wanted to get a sense as to how sensitive are the customers on the pricing front when it versus the offering that you have. In the long-term growth model that you have said, how much growth would be driven from the pricing aspect versus adding new accounts and new services?
Jagtar?
Yeah. Do you want [crosstalk] to start with the pricing piece [crosstalk] and I'll start with the?
Sure. Yeah, I would say, you know, when we're looking at converting customers, we're seeing, you know, price is always going to be a factor, but ultimately, one of the biggest things that we see as a driver is our strong multi-account approach. You know, some people in the market are really good at one specific type of account, for instance, HSAs, but they don't have the entire breadth of products that we do. We see that that's a really attractive way for people to consolidate the providers that they're using. Ultimately, what we find is that people want the right benefit experience for their consumers, and they are willing to pay more for that at times.
They won't always go with a low-cost provider, and that's been something that we've been able to essentially do really, really well through our strong distribution.
Yeah. In terms of our long-range model, you know, more explicitly focuses on the account growth, right? What we expect to get from the growth of HSA accounts. We're managing the interchange revenue and the custodial cash. Pricing isn't as explicitly modeled in there. I think that would be within the range, the 15%-20% range. You know, I think that's a big opportunity for us. It's a lever that we probably need to spend more effort on. I think it's a big opportunity for us.
Pricing is embedded, too, to the extent healthcare costs keep going up. To the interchange that we're earning, that's, you know, when Jagtar talks about, and you can see that historically, where that revenue was actually outpacing SaaS revenue, because you're seeing this tailwind and the fact that costs keep going up, and as a result, we're actually earning more revenue in that revenue stream.
Thank you so much.
Thanks. Hi, thank you. This is John Coffey from Barclays. When you sign new business, are all these just competitive takeaways for the most part? Is that how we should think about it?
Lisa?
We do see competitive takeaways, of course. We are excited about that always. There are, you know, there are new people entering the market as well. When we think about partners, there could be partners that, for the first time, are adding this offering. We also see, you know, with employers, maybe it's a specific benefit that they haven't offered previously, so it's a little bit of both.
All right. Great, thanks. Just one follow-up: When it comes to spending on the cards, the HSA cards, for example, could you help remind us on the dynamics of interchange? You're going to earn the interchange, but are there offsetting costs that you pay out to partners or somebody else in the ecosystem?
Yeah, we will have rebates that we'll often pay to partners, whatever. There is an offsetting card costs, that'll be right.
Okay.
Yeah.
All right. Great. Thank you.
Matty?
I was going to ask about pricing, but I missed my opportunity, so I'll ask a different question. Maybe you just comment on where you see healthcare spending today relative to kind of a normalized trend or a pre-COVID trend?
I don't know. Chris or Lisa, one of you guys have a thought on that?
Yeah, we track spend as a key management indicator. What we saw during COVID was two things. One was recession. People, you know, there were some people that were laid off, but that was a pretty quick V snapback. What took a little bit longer, a few quarters, was the ability to actually go out and receive care other than telemedicine. You know, there was this shutdown in the economy. In addition to that, there were people, even when things started to open up, there were people who were kind of reluctant to go out, right, because of their own personal risk profile.
We saw that come back pretty quickly, and Jagtar, I don't know if you or Lisa, if you want to, like, elaborate, but, you know, when we exited 2020 and went into 2021, we started to see that snap back pretty quickly.
Yeah, I would agree. I think that we're seeing some pretty typical trends in what we would expect from a spend perspective.
We'll combine one from or a couple from the from the virtual queue here. Do we intend to offer the opportunity for consumers to invest their HSAs into stocks or other assets? Just more broadly, you know, what's kind of exciting in the product pipeline or what are we... Lisa?
I'm happy to report that we already have that capability. For individuals that are in an HSA, they do have an opportunity to invest their assets. We've actually been investing in our investment capabilities, so individuals have a wide range of options available to them, all integrated into our user interfaces.
Just to add to that, from a product perspective, Chris hit on this earlier, we are really excited about artificial intelligence in general, how we can apply that across the portfolio and to help with decisioning as people are going forward. Right now, we use the data to help our customers, our end customers, decide how much money do they want to put into an account, what type of an account should they use. There's a lot of data that we use already, we think we have an ability to create an even more powerful model for the end users.
That, you know, Lisa talked about the fact that we're trying to help them make the best next decision in that life cycle that they have, and that's really a lot of the work that's happening within our product group, and we've got the person responsible for that in the back of the room, Matt Dallahan.
One more here, I'll say, so Jagtar, so the percentage of the cash balances for the HSAs that's been held at WEX Bank has been roughly two-thirds of the total for a little while.
Mm-hmm.
Is that what we should expect going forward, or is there a way to, like, materially, increase that?
The percentage of the
Yes.
$7 billion? Yeah. I think I answered a previous question. It's kind of along the same way, vein. You know, we will increase that percentage over time. It won't get to 100%. We will increase that percentage of the time. You know, right now, we do have a chunk that's in a term deposit that, you know, as that matures, it's something we'll heavily look at. We have opportunities to increase that over time. It's, you know, we're constantly balancing, you know, capital requirements at the WEX Bank, right? As we bring cash assets over, the capital requirements of the WEX Bank increase. I don't want to do capital infusions to do that, so I let the WEX Bank generate earnings to build the capital for us to bring more cash over. It's been a process as a result.
Thank you. One more follow-up. Are there any plans to add other products outside of healthcare, within this, within this segment, like for 401 or any other products, given that you have a bank and other products too? Just wanted to get a sense as to, you know, how could you monetize more from per customer here.
Lisa?
I think, do you wanna [crosstalk] talk?
Want to take [crosstalk] that?
I [crosstalk] can, yeah, [crosstalk] I can. You can see, if you look over time, we've been pretty methodical about extending our capabilities. We are constantly looking at ways that we can further offer more to that customer base. We are looking at doing that both through partnerships and through M&A, and, you know, and continue to build in the background as well. I would say anything that you think of in that continuum of something that we're evaluating and making a determination what's the best way to approach that part of the market.
Melissa, one from the virtual queue: What is your inclination to further consolidate the industry?
It's a great question. I, the industry itself, has gone through consolidation. We think it will continue to go through consolidation. We have been, you know, a benefactor of that. One of the things that we like about this idea that all roads lead to WEX, or many roads lead to WEX, is because of that. As you see consolidation, often one partner buying another partner, and we will continue to look and evaluate opportunities. As there's consolidation, we evaluate that often to see if there's a strategic fit for us in that case, and we'll continue to do so. I'd say we're at least active in the respect of evaluating and making a determination if we wanna do that.
Also, you know, we're very mindful of our partners who are out in this space too, and that they are also looking at consolidation as well.
Can you just talk about the portability of HSA assets, particularly when there's not a succeeding employer, and if you have the capacity to retain those assets once somebody leaves the workforce?
We do. We think of them, we actually call them orphan HSAs, but we've built up a pretty good portfolio, and many of our partners have as well. It's not just the part that we have custody of, but also partners who use us as the technology platform. Most custodians have a good process for being able to retain those assets and retain those accounts.
We'll wrap it up with one last question from the virtual queue here, about are the economics around custodial accounts, excuse me, much more profitable versus the non-custodial accounts? Jag tar, you wanna.
The business overall, or just the, I guess it's the clear-
Account level.
Yeah, at the account level. I would say the custodial cash accounts, the $3.7 billion, versus the revenue we earn on the $1.2 billion of non-cash accounts, that $3.7 billion is more profitable, right? In terms of, right, what we earn on per participant fees on the subscription model of whether we own the custodial cash versus if we don't own the custodial cash, I don't think there's a material difference there.
Excellent.
Okay.
Wanna wrap it up now?
Well, thank you, all. I appreciate, again, those who are on virtually and those in the room, we appreciate your time and your attention here. We're really excited about this. I hope you can hear that. We're enthusiastic about the benefits business. We're enthusiastic about WEX overall and the growth track that we're on. The four takeaways I started with, that you would have heard today, are the fact that this is a strategic fit. It benefits WEX and benefits the benefits business. This is a large and growing market. I think you've heard a lot around that from Chris and how we believe that we're gonna be a benefactor of that. We are positioned to win, and we feel very strongly about our capability to win in this marketplace, both from a product and from a sales capability perspective. Lisa talked more about that.
It's a great business model. Standout financials. you know, we love the recurring revenue stream. We love this model. It's something we continue to build upon. Again, thank you all for coming. I appreciate your time, and have a great day.