Good afternoon, everyone. Thanks for joining us today. I'm Ken Suchoski. I'm an analyst on the U.S. Payments and Fintech team at Autonomous Research. We're really excited to have Western Union here with us today at our fortieth Annual Strategic Decisions Conference. And we're thrilled to welcome Devin McGranahan for the third year in a row. Devin joined Western Union as the company CEO at the end of 2021, after spending five years at Fiserv, where he oversaw the company's acquiring and processing businesses. Prior to that, Devin spent over 20 years at McKinsey, including over 10 years as senior partner. So Devin, welcome. It's good to see you again.
It's great to be here. To set the record straight, it's 885 days since I took this role, but who's counting?
Yeah. Great. And thanks for everyone for joining in person and on the podcast. We're gonna do a fireside chat, so I'll start it off with a few questions. If anyone else has questions for Devin, feel free to submit those using the Pigeonhole application by scanning the QR code, and we'll try to weave those in as we go. So with that, Devin, why don't we get started? So you and the team have been very busy, working really hard to implement your strategy, turning the business around. So maybe we could start there, sort of high level. We heard at your last investor day in that was end of 2022, about your Evolve 2025 strategy. We're about halfway through that three-year plan.
How are you and the team feeling about the targets that you provided? Maybe you can give us an update on how you're progressing towards those?
Certainly. For those who, you know, might not be following the movie quite as closely, in the fall of 2022, we had a business that was shrinking in the mid-single digits, and we laid out a plan, over 3 years of taking that from shrinking revenue in the low single digits to growing revenue in the low single digits. Shrinking mid-single digits to growing the low single digits. And so we've been tracking, you know, incremental revenue gains, year-over-year, 200-250 basis points improvement each year. And now, 18 months in, you know, we talked about, on the last call, it was the third consecutive quarter of 5%+ transaction growth, which was the first time the company's done that, in a decade.
We had our Q4 of double-digit transaction growth in our digital business. So by objective measures, whether it's transactions or revenue, we are ahead of what we laid out in the fall of 2022, and I would expect, you know, we're gonna get to that positive organic revenue growth, you know, sooner than we predicted.
Mm-hmm
... when we laid that plan out.
Yeah.
So it's going well. Yeah.
Great. And part of your strategy was to shift from a transactional-based model to a relationship-driven one, and obviously, digital is a key part of that. But can you talk about the progress you're making towards this relationship-focused model? And how are things like retention rates trending across your different cohorts and different lines of business?
So the history of the business is as a retail cross-border transaction processor. So as the business was developed, the agents managed the customer, and we processed the transactions, and you had agents on both the send and the receive. In a digital world, at least in the first iteration of the digital world, we managed the customer, and then we had agents paying out. In this next iteration of the digital world, we're actually managing it on both sides of the equation. But much of the infrastructure of the company, much of the mindset of how we went to market, was still very transaction-oriented. So the basic philosophy was about maximizing revenue per transaction.
Mm.
And, I mean, you know, 'cause you've followed the company for a long time. You know, we used to talk about things like, "Oh, we're doing weekend pricing. Oh, we're doing street corner pricing." Well, think about that. So you're a loyal customer, and you normally send money on Fridays 'cause that's when you get paid, but something interrupts that this Friday. Kid's sick, you need to get home. And so you go on Saturday to send money, and it's 30% more.
Mm.
What do you think the customer thinks about that? From a transaction standpoint, sure, we just maximize the revenue of the transaction. But from a customer standpoint, it had consequences in terms of retention, it had consequences in terms of customer loyalty, and certainly had brand implications of how people perceived how Western Union treated its customers. So moving to a customer orientation, and that's both in the infrastructure, so how we make risk decisions.
Mm-hmm.
Historically, we made a risk decision. You could be the world's best retail customer, and the first time you did a digital transaction with us, we treated you like we'd never seen you before.
Mm.
New customer risk assessment, and yet you'd been our retail customer for 10 years, right? So bringing the systems together has really been something we've been working on, and then that's all translating into increased retention, which is part of how you get to 5%+ transaction growth is, you know, you grow new customers, but also you start to get more transactions per customer and longer duration of customer relationships.
Mm-hmm. Is there any risk, maybe just to follow up on this, Devin, on the agent side? Right, so if you're taking on more responsibility, is there any risk of disintermediating the agents at all, or is that, like, has that shown up over the last few years, or any signs of that?
So there's two important concepts. One, even with our retention improvements, and we're, you know, still lose almost 50% of our customers every year. So if you're a retail agent, dude, small increases in retention are great for you-
Mm-hmm
... because half your customers are going away every year. But more importantly, our agents, in my view, have never been happier, at least in the last couple of years, because not only do they hear from me, but they see in our actions that we're committed to our retail business.
Mm.
For 2017 to 2022, we talked about we're gonna be a digital company. So we stopped investing in our retail point of sale. We stopped investing in retail marketing. We stopped being competitive in many retail markets from a pricing standpoint. And so our retail agents were watching their business decline and thinking we had basically abandoned them in lure of going digital.
Mm.
For the last two and a half years, we've been investing in our agent footprint. We've been investing in our retail marketing and branding, but most importantly, we've been investing in our agent support, whether that's our point of sale, whether that's our call centers, whether that's their ability to serve their customer efficiently and effectively so they can make money.
Yeah.
So they're happy.
Yeah. Okay, so it's quite the opposite then?
Correct.
Yeah. Okay, that's helpful. And then, I mean, you're, you're making progress on the digital side, right? We've seen transaction growth accelerate. I think it was roughly flat or so in 2022. I think you're up to sort of the low teens today. I mean, what's, what's driving that? How much of that is due to customer growth versus, you know, transactions per customer, better retention rates? What's really driving that acceleration?
So when we launched the program in the fall of 2022, I was very clear that it's a pretty simple formula: grow new customers that will grow transactions, which will grow revenue. I think it's almost linear, particularly in a business that has kinda low-ish retention, right? So if you don't grow new customers, even at 60% or 70% retention, you can't grow the business. And so we've focused a lot on growing new customers. So we put new customer offers in the marketplace. We improved our marketing efficiency and our effectiveness. We worked a lot on increasing conversion rates for people who came to Western Union to look for a price-
Mm
... to actually making a transaction. So top of the funnel to the bottom of the funnel metrics, all significantly improved.
Mm.
There was a lot of conversation when we did it, if you recall, "Oh, my gosh, you're gonna get a lot of price shoppers. You're gonna decimate retention. Anybody can offer a free transaction. This will never work." Well, turns out, the customers we acquired and are acquiring are both sticking, and to your point, they're better customers. So we're getting incremental improvements in TPC and in PPT because the customers are sending more, a little more frequently, and sticking around longer. So it's actually working out pretty well, which is how we drive, you know, 13% transaction growth for now four quarters.
Yeah, and the retention rates, I guess, on the digital side, those have improved versus-
Right
... I guess, where we were a few years ago, and-
Correct.
Yeah. Okay. And you said 60%-70% or so?
Yeah, it depends on the market-
The corridor. Yeah.
The highest retention rates are in the fastest-growing part of the business, which is account to account.
Mm-hmm.
So we're growing the account to account business, you know, 30%+, and that is where the highest retentions are. The lowest retentions are, you know, somebody who does funds in on a prepaid card to pay out to cash.
Mm.
Right? So you know, it's a wide... and that's a wide range between the top and the bottom.
Yeah. Where are these customers coming from? I mean, is it, do you think it's competitors, or is it... I mean, there's a big part of the market that is not addressed by the traditional remittance players. So I guess, where are these customers coming from that you're acquiring?
So part of the, part of the reasons for our low-ish retention, relative to, other businesses, is there's a fair amount of churn-
Mm
... in a remittance customer base. So when you leave the Philippines and you go to the Middle East, you get a two-year work permit.
Mm.
Sometimes it gets renewed, sometimes it doesn't get renewed. When you go home, you don't need to send money back to the Philippines, right? People move, people settle. After three or four years, they stop sending money home. There's other obligations, commitments, things that they do. And so there's a fairly high natural turnover in our customer base, and so a lot of the customers are recent migrants.
Mm.
You know, one of the things we pay a lot of attention to is, where are migrant populations growing?
Mm.
Where are people crossing borders, seeking economic opportunity?
Mm.
That's where we can grow customers.
Yeah.
The great thing about us is our brand is synonymous with send money home. And for years, we've been in many of these, what would be traditionally payout markets: the Philippines, India, Bangladesh, Mexico, and everybody knows Western Union. So when they leave, the first thing that comes to mind is send money home with Western Union. That's where the customers come from.
Yeah. Okay, that's helpful. And you guys have done a nice job closing the gap between transaction growth and revenue growth on the digital side. I think the most recent commentary was that, for that to bounce around a little bit, over the near term. So what could make that spread, I guess, between the transaction and revenue growth come in a little bit higher or lower, versus what we saw in the most recent quarter?
Yeah. So I think in the Q4 of 2023, we had transaction growth about 12, and we had revenue about 5. So we had 700 basis points of gap. And we laid out a plan that said over the course of 2024, we'll close that to be closer to 300-400 basis points. For a multitude of reasons, some of which were driven by the calendar, leap year, Ramadan and Easter in the same quarter, we had outsized performance in the Q1. So we went up a little bit in transactions to 13, and we pulled revenue of 9, right?
Yeah.
And so that's way ahead of what we had expected. And so, you know, could bounce around. We're on track with the plan we laid out. We're very happy with the progression that we're making between revenue and transaction. I've been quite clear that for the foreseeable future, particularly because of what I said about the growth in payout to account, investors can and should expect a couple hundred basis points different between transactions and revenue. I've become a little bit of a historian of at least the recent past.
Mm-hmm.
And if you look at our digital business from, call it, 2012 to 2019 time frame, so pre, pre the run-up in COVID, right? We traditionally ran transactions 23%-25%, and traditionally ran revenue 20%-21%. And so the delta in the mix has been going on for years and years, and even then, we were talking about the growth in payout to account, and it was a much smaller portion than it is today. So I think we're on track. We will continue to watch that march up. I'd love to have the gap be even bigger in this quarter because that means we've accelerated transactions and, you know, revenue will take time to catch up.
Mm-hmm.
But if it's not, you know, it's not. It'll bounce around a little bit, but I wouldn't look at that as any-
Right
... any big deal other than there are dynamics in the business that, you know, as long as the trend line over multiple quarters is headed in the right direction.
Yeah. So that gap could actually widen, and that could be, I guess, in your mind-
It could be good.
Good for the business.
Could be good.
You're acquiring more customers, they're doing more transactions-
Correct
and then the revenue follows at a later date.
But also think about the dynamics. So we've gone to a model like most of the industry, where new customer, first-time new customer transaction is free. Growing new customers suppresses in-period revenue while accelerating transactions.
Mm-hmm.
The key is then converting that first-time transaction-free into later revenue-producing transactions in the next couple of quarters. So again, if we have a good quarter of new customer growth, it will suppress in-period revenue.
Mm.
Which is, by the way, a very good thing.
Mm-hmm. No, absolutely.
So it bounce around.
Yeah.
People are very indexed on the bounce around, but-
Right
... that's normal in any item.
Yeah. And then, I guess longer term, I just remind us the spread that you're expecting is that sort of 200-300 basis points.
Right.
I guess to get to the, in terms of the pieces around that, I mean, what do you guys expect in terms of transaction growth versus revenue growth in that digital business?
We're committed long term to double-digit revenue growth.
Yes.
Right? And as long as transactions are trending 13%, it's easy to see, particularly if you're gonna keep that at 200-300, how you get double-digit revenue growth.
Yeah. And remind us, Devin, the margins on the account payout, so it's a little bit lower rev per transaction.
Right.
But in terms of margin, is it better because you don't have the agent payout?
Margin percentage is better.
Okay.
Margin dollars is smaller for what you said because-
Yeah
RPT, we charge less for funds in from account to account than we charge for cash, obviously, because it's harder and more expensive to do cash.
Mm-hmm.
But the margin percentage is higher because we keep more of it.
Right.
You know, when we pay out in cash, I don't make it up, but our average payout commission, 20%-25% of revenue goes to the agent who's doing the payout.
Mm-hmm.
That goes away in that model.
Mm-hmm. And what's the cost, I guess, on the account payout side? That would just be funded into a bank account, basically.
Yeah, fund to a bank account, right. So there's generally a fee to deposit-
Mm-hmm
in somebody's account, but it's a fraction of-
Mm-hmm
-20% of the revenue.
Yeah. No, it's a good point. And the company brought down its digital pricing to more market-based pricing.
Correct.
... So are you seeing any response from competitors in terms of them looking to adjust, pricing based off of that promotional activity that you did? And I guess maybe higher level building on this, is the industry backdrop more constructive now that the cost of capital is higher, right? I mean, when rates were low, you know, presumably it's easier for these newer players to scale.
Yeah.
Cost of capital is lower. Obviously, we're in a different environment today.
Look, you'd probably be a better judge of macro dynamics of my competitors than I am. But we're pleased with where we are, and as I said, we now have a methodology where we wanna be in the market. We don't wanna be the highest, we don't wanna be the lowest.
Mm-hmm.
And by the way, so in some markets, that band is very narrow, some markets that band is high, which means there's not perfect pricing information. We have more data than anybody else 'cause we're in more markets and we see more things, plus we have the retail business. So we actually have pretty good sense that our pricing is working. But you hit a very interesting thing, which we're seeing more and more of. In a world in which there was free capital. People don't realize, my business is actually pretty capital intensive.
Mm-hmm.
Because in order to facilitate, particularly real-time money movement, you're gonna keep a lot of customer cash in the system to do the payouts.
Right.
For me, higher interest rates are good because I'm now actually earning returns on all the capital that I have floating around in the system.
Mm-hmm.
If you don't have capital and don't have easy access to capital, this is catastrophic.
Mm-hmm.
And so we're seeing a lot of these little digital players or small retail players really struggling-
Yeah
... because they can't fund their business.
Yeah, totally. So it helps you on a relative basis. I guess, as part of the Evolve strategy, I think, you know, part of that was using the retail channel as a gateway for the digital business and to drive better acquisition costs. I mean, how are you thinking about leveraging that physical retail network to your advantage, when it comes to digital acquisition?
Right. So we'll go back to there's a high degree of natural churn in the market because people move back and forth, and every year, many new people cross borders. We acquire 20 million new retail customers every year. Almost not, not the guy who's going to Stanford to get his PhD, but a normal migrant who's gonna work in construction, who's gonna work in hospitality, who's gonna work in agriculture, almost always their first remittance transaction is a retail transaction. They don't have a bank account, they don't have an international card. They get paid either in cash or they get a check that they take to a check casher, and then they live in cash. And so when they send money home, they walk into Walmart, they walk into one of my check cashing partners, and they send money home.
So that's the natural stop for most first-time migrants. So our job, and this is I talked on the last call about our new Omni-channel loyalty program-
Mm-hmm
... is to increase our ability to interact directly with that customer, whether that's through the loyalty program. The number one reason people call me: "Where's my money?
Mm-hmm.
Right? Digital Track a Transfer, helping people understand where in the process they are. Four out of five people on the planet have a smartphone. Very simple to have a digital Track a Transfer. Now, I'm having a direct interaction with that customer that has the ability for me, if and when they want to go retail or go digital, to be there for them.
Mm-hmm.
Right? So we're building these Omni-channel platforms and capabilities, whether it's Track a Transfer, whether it's loyalty, whether it's the refund process.
Mm-hmm
... so that our customers can interact with us, even if they wanna send money in cash in the retail environment. And then as they progress on their journey, they can become digital with us.
Yeah. Okay. That's, that's helpful. And then maybe just digging into the physical retail business, and maybe we could look at, this ex-Iraq for a second, 'cause I know... And that's, that's, becoming-- it sounds like it's becoming a, a real, a, a sustainable business for you, which maybe we'll touch on in a bit. But, you know, we think maybe the revenue growth for physical retail ex-Iraq was down sort of mid-single digits year-over-year. I think you said recently that was 200 basis point improvement sequentially. You're making progress, improving the growth rate on this part of the business, but how do you ultimately get this back to flat year-over-year? And what sort of visibility,
Yep
... do you have to improve the growth rate of that business?
Yep. So it's like digital, but in slow motion-
Mm-hmm
... because it's a much bigger flywheel, and it's a much less responsive network, right? And so I'm very pleased with... You know, we were shrinking retail transactions, mid-single digits, high single digits when I got here, right? Now, there are a bunch going on with that, but, you know, we're losing 6%-7% of the transactions. You know, we've now got that to flat, right? So that's a big... Now, I took some revenue hits in doing that.
Yeah.
So, sustaining that flat in the absence of any future... further price reductions, revenue will just slowly get back to revenue and transactions being relatively stable, which is also the history of our retail business. And so I think the real opportunity as we roll out— And remember, we did a lot of this in North America, which is the giant flywheel. It's where I launched Quick Resend, that's where I launched Remember Me, the One-Step Refund, the point-of-sale experience improvements for the agents. That's the giant flywheel, and that's what really helped move the wheel up. Rolling that stuff out now happens on a country.
Mm-hmm.
You got to do France, and then you got to do Italy, and then you got to do Germany, and you got to do Brazil, and you got to do Saudi Arabia. Like, you could, like, the continuing now comes one drop at a time as you roll it out across the network. So we'll see further gains from the rolling that stuff out. It'll just be slow.
Right.
Slowly, the growth over, which will happen mostly in this quarter and next quarter, which is when we took the big pricing last year under the umbrella of Iraq.
Mm-hmm.
You'll see those start to close as well.
It could narrow just based off of comps, basically, as you-
Based off of comps-
As you roll this forward-
And keeping transactions flat.
Right.
Right? So as transactions continue at a consistent level, the comps will go behind us.
Yeah. And the transaction growth in physical retail, you mentioned it got back to flat. You know, it was down mid-single digits before.
Yeah.
Obviously, you made some pricing adjustments, I think, taking some of that Iraq benefit, sort of reinvesting it back into the business. But I guess when you think about that improvement in transaction growth, how much of that was due to the pricing adjustments versus the other adjustments that you talked about, whether it's the POS refresh and other things around that?
It's a great question.
Maybe it's hard to quantify, you know?
It's hard to disaggregate it exactly, but what I can tell you is when we get competitive pricing and a good agent experience, we actually can grow the retail business mid-single digits. And so in parts of Europe, where it's really working well-
Mm-hmm
... parts of our distribution here in the U.S., whether that's Vigo or some of our independents. The market and the opportunity is there, but you got to get them right. You got to actually have a competitive price, and you got to have a good experience for the agent to efficiently process the transactions.
Mm-hmm.
When you get that right, this is a great business.
Mm-hmm.
When you don't get it right, it's very competitive and-
Yeah
... customers and agents quickly move the business someplace else.
Yeah. So you mentioned Europe. Sounds like some of these adjustments were already made in North America.
Yeah, we talked on the last call about, you know, you know, in Spain, how we're doing really well, and we put a lot of this into the market in Spain, which is a good market for us 'cause we've got strong payout in Bank. The Spain to South America is big, big corridors. I was recently in Africa and France. We launched our loyalty program between France and Morocco. That's a big corridor for us. We're doing well again there. And so, you know, there are those places where we're starting to really see the traction of the focus, the go-to-market, competitive pricing, and, you know, we will do that in more places around the world as we have the opportunity.
Yeah. So it sounds like you've made the adjustments in terms of pricing and the strategy on the digital side. You've done the same thing on the physical retail side. Maybe you could talk a little bit about how the two strategies are similar and differ in some respects. I think you mentioned that physical retail, a little bit slower moving, so maybe it takes a little bit longer to play out. But how else is the strategy different as people try to handicap, you know, will this actually play out and be successful on the physical retail side?
So the biggest difference on the retail side is we have less direct control over new customer acquisition.
Mm-hmm.
So one of the things we've spent a lot of time. Historically, the approach to physical distribution was sign up agents and cross your fingers, hope it works. And so we've done two different things. One, we've built a very data-driven model. We call it the Sales Block. We actually use Uber's open source market planning tool, which they use to, like, schedule rides. They've divided the world into these tiny little hexagons. And so we've overlaid our business into that tool and basically use it as a geo predictor for what that location should do. And it does two things for us. One, it tells us where we should open new locations, and I've talked about having the right agents in the right locations makes a difference for us, and doing that in a data-driven way is benefiting us.
Then the second is, where we have an agent in a location, if we're underperforming the prediction, we go ask why, and then we go invest in. And so we've turned a bunch of our salespeople into what we call farmers, which is calling on agents to help understand why we aren't getting the results that we want. So we're very focused on network productivity, not network count. And so we're driving network productivity, both in where we put new locations and how we manage the existing ones. The second thing we've done, and I've talked about this repeatedly, is more control over our brand and our distribution through owned stores, through exclusive independents, and through what we call concept stores, which is an exclusive independent, where we make a material contribution to branding and experience within their location.
Mm-hmm.
And so that, those outperform almost anything, both from a growth and customer experience standpoint, but also from a margin standpoint.
Mm-hmm.
And so managing and growing our controlled distribution is also part of the strategy to continue to succeed. But that is unlike the digital business, where you turn something on, voila!
Mm-hmm.
That's location by location, country by country. We opened 50 locations in Brazil. It took me a year.
Mm-hmm. And I guess, how, how do you guys think about the, so maybe more control over your end customer and what that experience looks like, but also more capital intensive, as well? So how do you think about that trade-off?
We parse the words capital intensive. It's not capital intensive. It's actually, in some cases, less capital intensive because we're not giving signing bonuses to-
Yeah.
It is operating expense is fixed. So historically, this business was exceptionally variable. So I only pay an agent when an agent processes a transaction. If I own my own location, now I'm paying a lease, I'm paying, employees. If no one shows up, I eat those costs, right? And so you have to get the locations right to ensure that you can support the fixed cost that we've incurred in doing it. Now, the good news is, and we've said this publicly, our own stores are operating at a higher margin than our agents-
Mm-hmm
... because the fixed cost also means once you actually reach volume, anything that's above is contribution positive.
Right.
'Cause you're unlike an agent, where everything's variable, so the next thing is the same margin as the last one.
Right.
We have more fixed. If you surpass the threshold, the next one is all gravy.
Right. Just got to make sure you're picking the right locations.
There you go. Hopefully, I won't be on the stage two years from now, talking about how we're closing all our own locations.
No, I think it sounds like you guys are having success and doing a good job on that front. Maybe we could touch on Iraq. I mean, I think there was a lot of focus coming out of the quarter on the country, and I think partially that was driven by people wanting to see how the business is performing ex Iraq. But on Iraq, I listened to some of the comments from you and the team, and it sounds like the contribution from Iraq is a little bit more sustainable going forward. And that maybe there's a good opportunity for that country to drive revenue and cash flow beyond 2024.
So how should we think about the durability of that business and the sustainability of the revenue and cash flow out of that country?
Great. So, well, let me start where we started this whole thing, just to clarify. The non-Iraq business is performing better than we anticipated on almost every dimension when we laid out our Evolve 2025 strategy, and all of our guidance and outlook for the year remain consistent. Within Iraq, we gave an outlook that we said, kind of in the subsequent quarters, somewhere between 10 and 30, which is a significant step down in the 120-
Mm-hmm
-that we had in the Q2 of 2023 is actually a much more durable and sustainable approach. We've solved most of the operations and settlement problems. We've narrowed the network on the retail side. We have two digital partners, probably will not expand those either. So we've solved a lot of the operating and settlement issues. We have a footprint in the country we like. We have a price now that eliminates most of the currency speculation that was going on. And so, you know, I feel very comfortable with that range that we've provided, kind of on a go-forward basis.
Okay, great. Maybe we could talk about the digital banking initiative for a little bit, so we could switch gears. You mentioned earlier this year that you've shifted your focus on, neobank customers to high-quality cross-border remittance customers. Maybe you could just talk about what motivated the change in strategy and where do you see the new opportunity?
So, the overall strategy from day one, and it comes back to this idea of turning the company to be very customer-centric, is we'd love to have an account-based relationship, and whether that's a bank account, whether that's a digital wallet, whether that's a prepaid card, we'd like to have an account-based relationship with every sender and every receiver in the world. By definition, our product is an occasional use transactional product. So you don't get up and send money home every day as part of your normal existence to live and to do whatever you do. Some of our customers only send money at holidays or at birthdays. And so increasing engagement and driving Western Union to the forefront when that occasional use comes, is part of solving our retention problem.
but also capitalizing on this massive customer acquisition machine to generate something other than occasional use remittance clients is important. So the strategy already always was enhance the experience and allow people to have a more account-based capability with us. When we launched, we actually got a bunch of momentum in Europe with what I would call the neobanking kind of customers. As every neobank in the world, luckily, we figured this out after 2 or 3 quarters and not 2 or 3 years or a decade, they're actually quite low revenue, and you make no money unless you lend money to them, which is a very risky and balance sheet intensive thing.
Mm-hmm.
Or you have a remittance relationship with them, cross-border remittance relationship. And so we've really indexed on that part of the market, which is cross-border remittance-oriented customers-
Mm.
—who would like to have a local account. You know, that is, that is a smaller market than just going out and drumming up neobank customers to sign up for a signing bonus and—
Mm.
you know, free transactions.
Yeah.
But that's not a-- that's... In a stock that gets valued as a low multiple of EPS-
Mm-hmm.
That strategy doesn't really work for me. It works for people whose stock is valued as a multiple of customers.
Yeah. EV to sales.
Correct. Correct.
Maybe we could touch on Consumer Services a bit. I mean, growth looks encouraging. I think it's high single digits. I think-
We were 8 in the Q1.
8 in the Q1. I think you're targeting double digits.
Double digits for the year.
Double digits for the-
Feel good about that. Yep.
There's a lot of different revenue streams-
Yep
... in that segment. Maybe you could just talk about what's resonating well with the customer base and-
Yeah
where you're seeing the most traction.
So the strategy behind Consumer Services is to allow our investment community to see the progress we're making on expanding the TAM, and expanding the value proposition beyond cross-border remittance. So we've kind of lumped together everything. Now, it's, again, coming back to the history lesson. It's quite interesting. In 2018, we took a bunch of this stuff, which we used to break out, the Bill Pay business and our B2B business. We took a bunch of stuff, and then we put it into something we called Other, and then stopped talking about it. So putting the lens back on it says, this is a focus for the company. In growing those transactional financial services, any one of them is probably not worth spending a lot of time on, but in aggregate... By the way, they're different.
So what works in Argentina is not what works in Romania, which is not what works in Brazil or the U.S. or the Philippines. And so it's an assortment of transactional services, bill pay, retail, money order, prepaid, digital wallet revenue or flow-
Right
...interchange that collectively represents the growth of our financial services business outside of cross-border remittance. And so that's where a lot of the new products are, the digital wallet, the prepaid cards, a bunch of our foreign exchange products and services that we've launched in our retail locations, a continuing investment in our bill pay businesses. And so we feel good about it. We're making real progress. Uptake is differing market by market. So in Argentina, you know, money flowing through remittance into the wallet-
Mm-hmm
... and getting users to pay bills is beyond our plan.
Mm.
Right? That's not the case in Europe, but we don't have Bill Pay in Europe.
Mm.
Right? We have our average customer in Europe is doing 8-9 transactions a month, but it's almost all debit card-based, so they're using it for Subway, they're using it for grocery stores, right? And so different products are resonating in different markets. But again, driving the revenue in aggregate double digits and increasing the level of engagement with our core customers-
Right
... is what we're trying for.
Yeah. So it's all, it's revenue associated with your core customer base, the cross-border-
Right
but it, like, shows up in-
New product
... it shows up in the other segment.
Correct.
Yeah. Okay, that's, that's helpful. I think you, you mentioned that the company launched the new digital wallet in Brazil. I think that was in the Q1-
Yeah
... if I remember correctly. And then you have plans to roll this out in the U.S.-
Yep
... in the second half of this year. Obviously, there's a lot of digital wallets out there, today. So tell us how you plan to position the digital wallet, in the marketplace, and how can you compete, effectively relative to some of the other offerings in the market?
Yeah. So I was in Brazil two or three weeks ago. Sent myself money-
Mm.
Got to Brazil, download the app, got redirected. The app redirected the money to my wallet, walked into one of my locations, exchanged the reals in my wallet for U.S. dollars, walked out with cash, went to McDonald's, bought an ice cream cone. So it works. It works pretty well. And our value proposition is, again, what I just did. I received money from the U.S. in Brazil, right?
Mm.
Our wallet is for our customers. Our wallet is a way for them to do FX exchange, to receive money from a friend or family member, to have a store of value, to do retail transactions, to pay a bill, and so it's a retention-
Mm-hmm
... strategy in important markets. It goes back to the overall strategy, which is, we'd like to have a customer, i.e., an account-based relationship, not a transactional relationship... with all of our customers on both sides of the transaction. So it is moving us in that direction.
Yeah. You guys probably have some data on this. I mean, how much higher are the retention rates if you're using multiple products? Is it, you know, is a meaningful lift or-
It is a meaningful increase. Now, the problem is it's a small number of customers-
Yeah.
So we've got to grow that.
So, where else can you roll this out? Like, what's the timeline around bringing this to other markets?
Look, we're working our way around the world.
Mm-hmm.
It's a question of, implementation, licensing, go-to-market. We're gonna bring it into the U.S. in the third or Q4 of this year. We're launching a receiver app, so not yet a wallet, but a receiver app in the Q3 in the Philippines. So we're migrating our way to this idea of customer relationships and accounts on both ends of the transactions-
Mm-hmm.
at some point, everywhere in the world.
Mm-hmm. And sounds like starting with some of the bigger markets.
Trying.
Brazil, US, Philippines.
Trying.
Makes sense. Maybe we talk about costs and maybe some M&A here just in the last handful of minutes. But you had some better-than-expected cost discipline the last few quarters. If you-
Could you say that again slowly so my CFO can hear it?
Better than expected cost discipline.
Tom, repeat that. Better than expected cost -- because he thinks I spend a lot of money.
Okay. All right, sure. Well, there's trade-offs.
Yeah.
You're trying to accelerate growth, so you have to reinvest. But, I think that's created room for maybe some accelerated investment in the second half of this year. So what are some of the areas that you tend to prioritize in terms of that reinvestment?
Yeah. So kind of in order of opportunity, if we can cost effectively, i.e., with the appropriate discipline around CAC to LTV, deploy marketing dollars to accelerate growth in any of our businesses, we'll do that all day long, right? The second is, you just asked the question, how quickly can we roll out our products and services, particularly this more account-oriented thing around the world? Anything we can do to continue to accelerate that, we will invest in that strategy and continuing to drive it around the world. And then the third is, there is a series of ongoing infrastructure improvements, whether it's... I talked on the last call about the, the building of this idea of a Universal Customer Profile and database within our company.
Mm-hmm.
You know, integrating that into more systems, whether that's our, our service center system or that's our CRM marketing system or that's our risk decisioning system. The faster I can accelerate all of our core processes to be customer-oriented instead of transaction-oriented, I will do it.
Mm-hmm. Okay, so that SG&A line, I mean, it's pretty stable. I think it's-- so the right way to think about it is you're finding these areas of expense-
It goes back to, you know, if we are good on cost management-
Right
... we reallocate into those areas-
Right
whether it be growing our marketing
Right
growing our, you know, go-to-markets or investing in our infrastructure.
Yeah.
But we're very disciplined on the 19%-21% margin, which means-
Yep
The relative proportions have to stay the same.
Okay
in order to keep the 19-21.
Yep.
The only way is to find money.
Yep. That makes sense. I was looking at the proxy statements recently, and EBIT margin, and I think EPS are our focus, so that makes a ton of sense. I guess when thinking about capability and solutions, I mean, is there anything missing in the portfolio today that you can think of? You obviously have a scaled physical retail business, a scaled digital business.
Yeah.
Is there anything that's missing that you would look to acquire?
There's two strategies that we're... You know, one is, if I could easily accelerate my wallet strategy in a cost-effective manner, which a lot of people who invested a bunch of money in these things, that's turning out not to be a good idea for them.
Mm-hmm.
If they're looking for a new home-
Mm-hmm
I'm a home for those things at the right price, which allows me then to have my two-sided network. And so that could be a place to deploy capital. And then there's certain things, you know, I'd love a better cross-border bill payment capability. Doesn't really exist in nature that much, so-
Mm-hmm
It might be something I have to go build. But if one walked in here with a big for sale sign on that looked like it was a good idea, I'd say, "Sit down, let's have a chat.
I guess the use case there is, instead of sending money home to, for that person to pay a bill, the migrant would pay it directly? Is that-
Pay it directly.
Yeah.
Many, many people maintain residences-
Mm-hmm
families, home, at home.
Mm-hmm.
Right? So for them, you know, a great example is, in the Philippines, you still have to make your, what would be the equivalent for us as Social Security payments, even if you're working abroad.
Mm.
So today, that's a cumbersome process where, you know, you send the money to somebody who then goes and pays the government on your behalf, and there's paperwork you got to fill out. Cross-border bill pay is a real thing.
Mm.
Nobody's really figured it out, and we're the natural people to offer that as a service, particularly if we have an account base that says: "Hey, you wanna pay the electric bill in Mexico City for your mom? We can help you do that.
Yeah.
We have a bill pay business in, you know, many of these countries. It's just all domestic.
Yeah. Well, you worked at Fiserv. They have a big bill pay business, so I won't put it past you.
Yeah.
Maybe, maybe last question for you, Devin. Maybe you could just talk a little bit about your preference for capital allocation versus buyback. I mean, I think you know, you guys stepped up the buyback a little bit here versus some of the quarters last year.
Yep.
You know, obviously, your stock is trading where it is, and you could shrink the share count. So maybe talk about your preference between M&A and buyback.
Look, so we remain very committed to our shareholders. We're very committed to the dividend, the discipline around the 19-21, make sure that we can cover that dividend without any problem. Excess capital, if we found the right thing to help create shareholder value and grow it, but that bar is high.
Mm.
Particularly at, you know, I don't wanna do anything that's too dilutive. So when we have excess capital at our share price, it's easy to buy back stock.
Yeah.
I don't have Jamie Dimon's problem, where he doesn't wanna buy back his stock 'cause it's too high.
Yeah.
I don't have that problem. So I'm happy to buy back all day long.
Yeah, absolutely. Great. Well, we'll leave it there since we're out of time.
All right.
Devin, thank you so much.
Thank you, Sarah. It's a pleasure-
It's great to see you again.
-as always.
Yeah.
I appreciate it.
Appreciate it.
Thank you.
Thanks for everyone for joining. Appreciate it.
Thanks for all the questions. Really appreciate it.
Great.