All right, good morning to the morning session here with Western Union. Always excited to have the Western Union team with us. Devin McGranahan, CEO, is kind enough to give us some time. My name is Tien-tsin Huang. I'll be interviewing him with the fireside chat and taking questions from the audience, as well as from the portal. So, with that, I'll get right into it. Devin, good morning.
Good morning, Tien-tsin. It's great to be here. Thanks for having us.
Oh, it's great to see you. It's crazy, it's been years gone by, and here we are again on the same stage. You know, starting out with just the obligatory question, if that's okay.
Yeah.
I know the consumer is really resilient on your side, but we're asking for what you're seeing on the ground with respect to consumer health. Any observations calling out, especially as you go across the globe here, given your global presence?
Yeah, we've been surprisingly pleased with the resiliency of the consumer.
Mm-hmm.
When we went into this macro environment, we were modeling a much greater impact on our customer. Our customer is largely at the lower end of the socioeconomic totem pole.
Mm-hmm.
And as a result, inflation impacts the cost of their daily existence at a far greater rate than it does someone like us, right? So basic staples, transportation, food, housing makes up a much greater portion of their budget. So we've been surprisingly pleased with the resiliency we've seen. Our PPT has remained consistent over the last two years, ex-Iraq, and our TPC has also remained exceptionally resistant, resilient. And so, you know, we know that our customer is pretty unique, right?
Mm-hmm.
Our customer is cross borders. They are in search of opportunity and have strong obligations, familial obligations, community obligations, that they feel compelled to send money home. And so despite the effects of inflation, they've remained very committed to that purpose, and we've seen it in the numbers now for 6-8 quarters.
Yeah, no, resiliency has definitely been the theme across the consumer base. How about on the regulatory side? I know there's always a pendulum that will swing. I'm sure we'll talk about Iraq here or later, up to you, but in any broader regulatory themes to call out, that's good or bad for you, whether it's a short wave or a long wave?
Yeah. So, you know, we operate in, I don't know, something like 180+ countries around the world, and so it's tough to say, quote, unquote, "The regulatory environment." There are places that are easier to do business and places that are tougher to do business, but at the macro level, it's been very stable. There have been, relatively little focus on some of the issues in terms of, payments, in terms of banking, in terms of financial services-
Right
-as the world has grappled with other geopolitical issues. I would say there was a period of time, maybe four or five years ago, where in many countries around the world, there was a pouring forth of people getting what I'll call payments licenses. So kind of in between a normal remittance or transactions license and a full banking license, so these digital payment licenses were kind of in vogue around the world, and lots of them were issued. You see regulators pulling back on those now, as many of those companies have not fulfilled the mission or the obligation that they set forth when they applied for the license.
And so that is probably the only regulatory contraction I see. Regulators have gotten a lot more skeptical about a, you know, a business plan for a digital wallet or a payments company, having now seen many of those not flourish.
Yeah.
In many parts of the world.
Yeah. Well, I think that's good for you, given the asset that you have around compliance. But before we get to that, just, you know, with the election year, I get a lot of questions around potential immigration reform. Is that your, something that you're watching? Is that something in the past that has impacted demand in the U.S.?
You know, we went, we've gone back and looked at it. There's lots of conversation about this election, obviously.
Of course.
And whether you go back 5 years, 10 years, 15 years, despite the administration, there's a relatively consistent flow of migrants into the U.S., and that's actually true pretty much around the world. If you look at the global macros for the next 30 years, most of the developed world, in order to sustain their standard of living, is going to have to have an inflow of population. So again, there'll be ups and downs, and there'll be political skirmishes, but net migration into the mature, developed countries around the world is a must in order to sustain global GDP growth. So the macros are all in the favor of it. The second thing to keep in mind is, in any given country, take the U.S., right? The preponderance of my customers are here already.
Mm-hmm.
They've been here already.
Mm-hmm.
So in any given year, the net new migrants are a small part of our business, relative to the, you know, the base of migrants. You know, if you look at a country like the Dominican Republic, you know, the base of Dominicans in the U.S. is now, like, 40% of the whole country of what's still in the Dominican Republic, right? And so those are the people who send money home. Those are the people who built lives here. Those are the people who have jobs. And so net new migration in any given administration doesn't change our business that much.
Okay, good. And then just lastly on this one, just on Iraq, anything new? And maybe a quick update on what happened, and I know you've attacked it with some operational changes as well.
Yeah, so I think. So let's just step back for a second.
Please, yeah
'Cause, you know, Iraq is a unique event for us. So there were some changes there last year, a little kind of in the March-ish timeframe, around the nature of the banking regulations and how the country was managing inflows and outflows. Which we benefited from enormously because of our inherent competitive advantages in places like Iraq, right?
We had distribution partners, we had relationships with the central bank we had the compliance and risk skills in order to manage the outbound to particularly certain countries like Turkey and other places, where, again, we had a big incumbent distribution base, we had regulation, we had risk and compliance capabilities, and we had relationships with the central banks. And so we benefited from that in a way that, you know, many others didn't. But it was a little bit of a rollercoaster. So the last quarter, the second quarter of last year was quite significant as that change rolled in. And now it's moderated to a place where we gave guidance back last month, where we said it'll be between $10 million-$30 million. I feel very good about that range. We've solved a lot of the operational problems with settlement and our settlement partners.
You know, it's now become a much more consistent part of our business in a much more predictable range.
Okay. Good. And I know there was some confusion post the call with growth ex-Iraq. I was just gonna ask it straight up, Devin, just thinking about FX neutral-
Yep
-revenue growth, excluding Iraq, it seemed like it was fairly stable. Can you just clarify where everything shook out?
Yeah, I loved, you're, you're right, I loved your term, there was some confusion. So look, I was very excited about our digital business in the first quarter.
Mm-hmm.
To be clear, our digital business has no Iraq in it.
Yep.
Right? And so we had 13, roughly 13% transaction growth, 9% revenue growth. We closed that gap between transactions and revenue by almost 500 basis points in the first quarter, right? And that was ahead of what we had been talking about, and it was, I think, a demonstration of the strength that we're seeing in our digital go-to-market program. And that has absolutely nothing to do with Iraq.
Right.
In the quarter, because of us managing now this cap on settlement flows, we raised prices a little bit, so we did see a little bit more revenue from Iraq in the quarter than we originally anticipated.
Mm-hmm.
But transactions in the retail business, ex-Iraq, were, you know, I'll call it flattish for the third quarter in a row, which hasn't happened in a long time. Retail revenue, ex-Iraq, was like -5%. So again, that's a sequential improvement quarter-over-quarter, you know, roughly in the neighborhood of 200 basis points.
Right.
So this train that we're on, you know, is going, as we talked about, with Iraq, ex-Iraq, to bring the retail business back to stability. So think about that as low double-digit transaction growth with, you know, stable revenue. Put our digital business into, you know, double-digit territory, both in transactions and revenue growth. And, you know, we predicted we would have achieved that by 2025, and we're well on the way, you know, here in 2024. So I feel very good about it. With Iraq, ex-Iraq. By the way, Iraq is good.
Sure.
It generates some revenue and some cash and some EPS-
It's real cash.
-that we get to use to continue to grow our business.
Yeah. No, it's great. Hats off to you. I know there's a lot of moving pieces, but it does feel like the plan you put in place is working. And you said, like, with patience, you'll get there in 2025. It feels like we're on our way. I know I get the question a lot, Devin, just thinking about money transfer, transaction growth, it's been solid, right? +6%, three straight quarters is what I wrote down.
Yep.
It's faster than the World Bank figures that some of us use as a benchmark. Decompose that for us in terms of the growth algorithm or the components of the growth. How do you think you've gotten there, and what do you think really can move the needle from here to either sustain or accelerate?
That's a great question. And so for us, there are three kinds of markets, right? There are markets that have strong tailwinds.
Right.
And that is from either a corridors perspective, a geography perspective, or a channel perspective, right? So, you know, digital in general has a tailwind. Customers are moving digital, so making sure we compete and win our fair share of digital pulls the transaction growth up. There are regions of the world, so the Middle East, given all of the investment that's happening in Saudi Arabia, given the dynamics with the price of oil, is a strong region, right?
The U.S. is a strong region right now, particularly U.S. to what I'll call the northern parts of LACA, the Mexico, Guatemala, Honduras, Nicaragua. And so making sure that we're well-positioned either in those corridors or those geographic macros to benefit from outsized growth is really important.
Sure.
The second is, making sure that the overall landscape of the company, so getting our retail business to productive, everywhere in the world, and making sure that, you know, we continue to serve retail customers. And I know there's some belief that that business is, you know, dying. But most migrants, when they leave their home country and end up in a new country, and they send money home, that first transaction is a retail transaction. They don't have a banking account. They don't have, many times, established enough, consistency in the country, and so it's a cash transaction, and it's a cash transaction at a retail. So that port of entry for new migrants is our retail business.
So making sure we capture our fair share with the right agent relationships, the right, you know, incentives to those agents, and then a great experience for both the agents and the customers is really important. And then finally, you know, the digital business is slowly consolidating around a couple of now, you know, billion-ish players.
Mm-hmm.
I think that's to our benefit, and so continuing to grow and compete in the digital business with now, you know, three or four of us that are of really at scale, you know, creates a different market than when you're competing against a bunch of subscale players who, you know, are clawing for growth and maybe don't have the same profit objectives that large public companies do.
Yeah. So you mentioned retail. I think you've also said it's the gateway, right?
Yep
For growth, and I think that is an advantage. I'm curious, just for the benefit of everyone, why does a consumer choose Western Union on the digital side over some of the other digital players that are out there?
Yep. First and foremost, it is brand and brand familiarity.
Mm-hmm.
So we have, hands down, the best brand recognition in significant payout markets everywhere in the world, and that is the history of our years and years and years of being in the retail business in those markets, having strong agent partners, and in many cases, having large inbound market shares. And so when someone leaves their home country, and they end up in a new country, and they want to send money, whether that's digitally or in the retail business, as we talked about, but digitally, the first brand that they think of is Western Union. If you look at our unaided organic search results-
Yeah
-we're factors above everybody else. So Western Union is synonymous with sending money.
Right.
Now, the challenge for us, and the opportunity that we've been capturing over the last two years, is having a value proposition when they end up on your digital properties in terms of cost, speed, and experience, that causes them not only to do that first transaction, but to stay.
Mm-hmm.
And to say, "Hey, this was great. It worked really well. It's a great value. It was a great experience, and I'm gonna stay at Western Union. I'm not gonna try somebody else." And so, you know, translating that brand recognition into great digital experiences with a strong value proposition is what we've been doing for the last 18, 24 months, and that's what's translating into the double-digit transaction growth now.
Yeah, and then price elasticity on the digital side, I know loyalty is a big-
Yep
-part of what you're talking about. And I ask this in the spirit because I believe PayPal, with their Xoom-
Yep
-asset in remittance, they're talking about resetting that business and getting pricing to be more competitive.
Yeah.
So, what's the philosophy around pricing on digital?
Yeah, so, I, having recently spent two years doing that, I wish them good luck.
Yeah.
It's very hard. Look, digital is exceptionally transparent, and you can go online and basically get a market effective price to any quarter in the world in less than five minutes.
Right.
And so that efficiency means there is no, a nd I think the company, my company for, you know, decades, enjoyed a premium on its ability to price due to the strength of its brand, the strength of its risk and compliance, and the strength of its payout network. I think in a digital world, the brand still remains exceptionally important because how customers get acquired can be very expensive digitally, and so the ability to leverage your brand to cost-effectively acquire customers is a differentiator. But the other two, they're game stakes. Because, you know, if you're out of the price window, you're not gonna get the first look. If you're out of the price window when somebody comes back, you're not gonna get the first look.
So we spent, as you know, much of the back half of 2022 and 2023 normalizing our digital prices to market pricing.
Mm-hmm.
Right? And so we spent a lot of time making sure that we are competitive in those places, that it's exceptionally important from what we call a market price. What are the basket of prices that are in the marketplace for that corridor at that period of time? And we wanna be in that hunt. We don't ever want to be the lowest, we probably don't want to be the highest, but we want to be in the hunt for market pricing, and that's made a big difference. And so, it's a little different in the retail business, where, you know, there's more to do with agent incentives, there's more to do with geographic proximity and location, in terms of how you think about pricing. But in the digital world, there's a band, you need to be in that band if you want to compete and win.
Got it. Very clear. I know you're moving some of your transaction process-
And by the way, I think-
Okay, yeah
I think as evidenced by now that we've, 'cause as you know, most of last year we were running transactions in the teens, and revenue was, you know, barely hovering in the positive. As we've grown over now, the pricing that we put in the marketplace to get back to market competitive, you're seeing that gap close, right? And so, you know, I get asked this question all the time, which says: "Well, why is it sustainable?" So unless the market decides to reprice you know, we just stay in the market pricing band, and that revenue closes to something that looks more like the impact of channel mix and corridors and other things, which causes a slight difference in RPT, and then the difference between transactions and revenue. But it becomes, you know, I think, we think, 200-300 basis points, not 600 basis points.
Right. Right, and I think that's implied in your outlook, right?
Right.
With some of the spread. That was my question, is that you're, you'll see a little bit of volatility short term, but it feels like you have good line of sight into getting to that level.
Yes. We feel good about getting to that level.
Okay. You've mentioned, and I've been wanting to ask you, 'cause since we're at a tech conference, shifting to the cloud and, and moving the transaction processing engine to the cloud, what are the implications of that, Devin? Does that give you more freedom on the tech and product side, or is there a cost benefit only?
Look, so anybody who's had the privilege of working in a legacy tech company, they understand the, you know, the history of large, hard-coded mainframe applications. And frankly, while they're exceptionally resilient you can process hundreds of millions of transactions very consistently, they're also exceptionally difficult to change. And so it creates an ongoing struggle to be able to react quickly. It creates an ongoing, you know, source of cost to maintain and to update the historical legacy mainframe transaction processing systems that the big older payments companies had. Our move to the cloud enables us to break that paradigm, so we can be a lot more flexible now. We did a bunch of refactoring in our code base to allow a lot more configuration-based changes.
Mm-hmm.
That allows us to be able to go to market quicker, to update features, functionalities, pricing, in a much more real-time basis, and much more like a, you know, company that started in 2015 or 2018 that's much more of a digital native than one that started in 1851.
Right. So sounds like product velocity, as well as freedom around pricing as well.
Product velocity, go to market, but really it's about pace.
Okay.
It's about the ability to do things much quicker than in our old approach.
Okay. So is the margin impact gonna be something that we will see once that's completed, Devin, or is it gonna get redeployed into some of the other initiatives we talked about?
I don't think it will change the way the margin is generated, so it's variabilized our cost structure more, which I think is a good thing.
Yeah.
But the cost on a unit basis is roughly the same, right? It's just instead of having large quantities of mainframes, we now have, you know, cloud providers that we buy by the drink.
Got it. Okay, thank you for clarifying that. Let me, let me stop quickly, take questions if there are any. Otherwise, I'll, I'll, I'll keep going, but happy to take a question or two.
Sure.
Yeah, Meena. We'll have mics, actually.
Hi. Thank you, Devin. I just had a quick question about Iraq. You said this coming quarter, you're expecting $10 million-$30 million in revenue. Obviously, last two Q and onwards, it was a lot higher than that. I was just wondering if the decline in revenue, obviously, there's some variability and volatility in the regulation, but if the lower revenue you're now expecting from Iraq is because of your settlement partner relationships, or if it's more because of regulatory changes that occurred?
So there's been no change in the regulatory environment, that I'm aware of. It's literally managing our settlement now in a much more consistent fashion, that we think is much more durable. And, you know, to be direct, we raised prices, which changes volume. There's less currency arbitrage available than there was before, and so that lowers demand. And so we're now in what I would consider to be a much more stable and predictable outcome that, you know, we're just gonna build into our business as part of what we now do, like we do in many other difficult countries around the world. When you operate in 180 countries, they're not all like the U.S. or Europe. Lots of them have these kinds of volatility. Just this one spiked unique last year at this time.
I think it's back to being, you know, one of the very many places we operate, where I think we have a competitive advantage because of, again, our distribution, our ability to solve these settlement issues, and our risk and compliance.
Thank you.
Anyone else?
I'm also hoping that my conversation gets to be about the strategy of the company and what great things we're doing digitally, and Iraq kind of goes away as everyone's focus.
Hey.
You'd think sometimes I run a company in Iraq.
Yeah, no, look, it'll be nice to not do the math of all that as well. I'm 100% with you, Devin. So let's do a few more. I do wanna definitely ask you around the Consumer Services opportunity. Been hearing a lot about embedded finance and a lot of software companies looking to bank their users, and we always think that Western Union's in a great spot, given the trust, the brand you just talked about, and just the natural money that comes in that users trust you with. Why not present an opportunity to do more in the way of financial services? So what are you excited about? What would you highlight for us within that Consumer Services segment for us here that can really-
Look, we're very excited. A lot of what we've done over the last 18 months in terms of building capabilities, ends up in that Consumer Services. And, you know, as we were reflecting on it back at the end of last year we don't think we, when it was labeled other, got enough conversation going about what's happening in other. I joked one time, I'm becoming the company of other.
Yeah.
That calling it Consumer Services, which is really what it is, so think about it as products and services for our customer base, and again, we have the privilege of 120 million-ish customers around the world. Again, very much sometimes as a catchment for a single-use case, which is cross-border remittance. And we weren't leveraging that enough. So putting more products and services into those customers' hands in markets around the world is what Consumer Services is about. So our digital wallets in there, our prepaids in there, our debit interchange from our debit cards is in there, our forex exchange is in there, our retail money order business is in there, and our bill pay business is in there. Those are all businesses that we're growing in different ways in different parts of the world, both retail and digitally.
We came out last year and said, "We think that's a double-digit grower.
Right.
We feel, you know, pretty good about that. I think in the first quarter we were kinda 8-ish, and I feel good about the second quarter and hitting our double-digit growth number for the year, as there was a little bit of a slowdown at the back of the year as we grew over some retail money order portfolio rebalancing that we had done back in 2022. So it's a great segment for us. It leverages our brand, it leverages our inherent customer base, and we've been bringing new products to market. Two weeks ago, I was in Brazil. I experienced our digital wallet there firsthand. You know, we're integrated into the local Pix system, so, you know, you can redirect inflows into the wallet. You can load the wallet in any one of our almost 100 company-owned stores.
I did. I sent money domestically using Pix. I sent money internationally. I bought an ice cream cone at a McDonald's. You know, it is a fully enabled payment wallet leveraging the real-time rails in that country, and so that's just a product or service we didn't have. It leverages our physical infrastructure in that country, which is the owned store network.
Yeah
And it leverages our inbound remittance business. Brazil is, you know, about half inbound, half outbound, so there's a fair amount of money that flows into the country on Western Union rails.
I would imagine that the market is very consumption-oriented within Brazil. I know Nubank has been a big success, so I did field a lot of questions, Devin, why was Brazil? I think you just answered it given that there is a lot of competition perceived from a Nubank standpoint, but do you see that as, as competition, or are you really creating your own market?
So Nubank, as you know, makes the majority of their business giving credit cards to people.
Right. Yeah.
Right? We're not in the credit card business. I'm not going into the credit card business. Ours is really about driving retention in our remittance business, right? Again, remember, that product is an occasionally used product, and so capturing those customers so that when they do have that occasionally used product, they have our wallet, they have money that they wanna send home in our wallet. They use our product. Yeah, we'll earn a little bit interchange, or we'll earn some bill pay, or in that country, we own a forex exchange business as well. That value proposition, which is around loyalty, which is around utilizing the trusted products and services we offer, is really what it's about. I'm not gonna go try to compete with Nubank.
I'm not going into the lending business in Brazil. I'm not going into the branch banking business. I'm trying to expand the value proposition for Western Union's remittance customers.
It's fully funded?
Fully.
In terms of your, you know, from thinking about your margin targets-
Oh, yes
-through 2025, getting to where you wanna be, you don't feel like you're being held back in terms of investing in these initiatives? 'Cause they sound obviously very exciting.
Yeah. So, you know, part of what we did back in the fall of 2022 was to lay out a three-year journey, that could support our margin goals of 19%-21%, which can support our dividend, and begin to invest again in our customer experiences, whether that be investing in our point-of-sale system, which we've done a bunch of, whether that's bringing out our new, transactional digital, which we're now in, you know, I'll call it a half a dozen countries, more or less, whether that's building these digital wallets, expanding our prepaid, our bill pay, all of that has been funded through basically our cost reallocation program- Okay. while maintaining our margins.
So I feel good about where we are in that journey. I feel like there's still plenty of opportunity to continue to make the company more efficient, which will enable us to hit those margin targets, fund our growth initiatives, and start to drive real revenue growth.
Great.
Hi-
We have a question from the audience. Yeah?
Yes, I had a quick question. You mentioned that your product is pretty infrequent. So let's say for South America, flows from the U.S., are people basically sending money, like, six times a year or twice a year? What's kind of, like, the rough average to think about for the remittance business?
Yeah, so, like, in all things in life-
Yeah, average, yeah.
- there are lots of segments, right? We have very frequent senders and then we have people who send for Mother's Day or for, you know, Ramadan or for Christmas or for a holiday. On average, we're about six to seven transactions per customer,
Per year?
Per year.
Got it.
But again, there's a high degree of variability in that, quote-unquote, "average.
And that six to seven you cited, is that, I mean, the question I asked was more like Latin America, South America, but are there any kind of global differences, or generally, is it, like, a six to seven to LatAm, South America?
I don't know that I could easily break out LatAm or South America from the global average, but you can follow up with Tom afterwards if you want.
Thank you for the question. Anyone else? We have time for one or two more maybe. If not, so given the prospects around Consumer Services, is there a desire or need to acquire tools, products to maybe accelerate what we're trying to do in some of these countries, Devin?
So we think the expansion of Consumer Services opens up the ability to deploy capital inorganically a lot better. So if you're only in the cross-border remittance business, there aren't a lot of interesting things to buy, right? You can buy kind of broken-down, small retail players, some of whom have less robust systems or risk and compliance processes than we do, so that's a problem you don't want to fix. You know, again, I said the digital world is consolidating around, you know, a handful of billion-plus players, and then it drops off very, very quickly, to, you know, kind of small corridor specialists, so that doesn't add any real scale.
So there aren't a lot of places to inorganically deploy capital to grow a remittance business, particularly when you're our size and scale. However, in Consumer Services, there's lots of opportunities to look at digital wallets, prepaid businesses, bill pay businesses, cross-border bill pay businesses.
Mm-hmm.
You know, the list can go on and on, right? And so, we think that's exciting for us as we build out that part of our, strategy and our business, is the opportunities we're starting to see in some of those markets around some of those products and services.
Okay, great. Rapid fire, two more. Crypto, stablecoin, is that on the roadmap for Western Union?
We will not probably be issuing our own stablecoin any time in the near future. I know some competitors are debating that.
Right.
We actually had a brief foray with a Western Union stablecoin in the 2016, 2017 timeframe. But the idea of blockchain-based technology, CBDCs, you know, our business, I think about our business as customer acquisition, risk and compliance management, and customer experience delivery, right? And so if you want to move money, and we can have a longer conversation, but society has decided that if you want to move money across borders, we need to know who you are. And the idea that there is anonymous abilities to move money around the world just leads to bad things. So whether it's blockchain, whether it's the banking system, whether it's Western Union, somebody has to live on both ends of that transaction, and somebody has to take whatever form of value that you're transferring it and convert it into one you can buy a gallon of milk.
And so our business is acquiring customers, managing risk and compliance, and doing that conversion, whether it's fiat to crypto, whether it's one fiat to another fiat, whether it's from one crypto to another crypto, that's my business. And so, you know, we are working with different places around the world on how we enable other forms of transfer of value, I'll call it, and certainly, digital currency is one of them. We'll be launching our U.S. wallet sometime in the third quarter, fourth quarter of this year. It'll have a crypto buy, sell, hold capability.
But again, we don't see that as anything other than we also have a bill pay business, we also have a prepaid card, we also have a, you know, debit card, and so, you know, buy, sell, hold crypto is just another Consumer Service that we'll offer as part of our value proposition.
Good. We went through a lot.
We did.
We're out of time.
Thank you so much.
I know you're working hard, Devin, so I like I said-
I appreciate it.
I always enjoy going through the updates with you.
I really enjoy it. Thank you so much.
Thank you.