Everybody, I'm Jason Kupferberg, the payments, processors, and IT services analyst here at Bank of America, and we're very excited to have Matt Cagwin here, CFO of Western Union. Thanks for coming back. We appreciate it. I guess you had a good experience last year, so
It was wonderful, Jason. Thank you for having me back.
Good, good, good. Well, we, we're excited to have you here, and, you know, I wanted to go through a number of things. There's been some interesting developments, obviously, at the company, and I thought maybe we could start by just reflecting back on the Investor Day, October 2022. You were brand new to the company. Devin had been in the seat, I guess, a little over a year at the time, and, you know, you guys laid out a pretty comprehensive strategic plan. How would you kind of rate yourself now, almost two years later? You know, what's worked? What's a work in progress? Let's start there.
Yeah, that's great, great first question, Jason. I was actually lucky, though. I was 90 days in, so-
Okay
... I knew a lot at that point.
I strongly advise anybody to get an Investor Day their first 100 days. But just a reminder for everybody, what we laid out in October 2022 was a 4-pillar plan. The first one was to stabilize our retail business. We view our retail business as the gateway to Western Union. We board roughly 20 million new clients every year to that business around the world, and it had been in decline for many years. Both on a revenue basis and a transaction basis, it struggled. The year before the Investor Day, it was down high single digits, but we felt like for a company that was $4.2 billion, with 75% of it being retail, you have to find a way to stabilize that.
The company had walked away from it back in the late teens and really were pivoted hard to making our digital business work and had underinvested in the technology, the agent relationships, the sales force. We've done a lot over the last two years on strengthening all those elements. We've put out new technology, we've overhauled our commission plan, we've changed how we do contracts with our agents, trying to align on how do you grow that business. It's been the biggest surprise for us, is it got there faster than we thought. We've been able to grow that business, or gotten back flattish on transactions now for three quarters in a row. Revenue is still declining in the low single-digit range, but we can see a glimpse about how you can grow that business.
The second pillar of our strategy was get back to market-level growth for our digital business. Our digital business is about 25% of our company. It had Q2, before our Investor Day, had been shrinking by low single-digit transactions, but had positive revenue of 1%. Over the last four quarters now, we've been able to grow that double-digit transaction, and we've gotten to high single-digit revenue growth last quarter after having three consecutive quarters of positive revenue growth. How we got there is we launched a new go-to-market strategy prior to our Investor Day. This was made up of improving how our app works and how the customer would interact with us. We started to overhaul our marketing campaign, and we introduced a market-based pricing for subsequent transactions and promotional pricing for new customers, which was first transaction fee-free.
We had good insights at Investor Day that was going to work, and has turned out to be very good, and has gotten us well on our way to where we think we can be with a double-digit growing business. The third pillar for us was other accessible financial services. This was net new activities for us, largely. The company today has two businesses, bill pay and money order, that have been up and down year after year over time. But we feel like we got to leverage our 120 million customers around the world that we have. And there's a way to help them with financial services they can't get access to, and there's a way to create more relationship, a lot more active relationship with them. And by doing that, you actually make them stickier-
Right.
... help improve our retention. We're well on our way. We had enough confidence last year in Q4 to put out a double-digit growth in that area. We've now grown that space two years in a row of double-digit. Q1 was 8%, and we feel very confident about where we are on this year. So that's going well, but it's got lots of little things in it that are, some are really awesome, some are moving their way, we expect. And the last one is operational excellence. We launched a program to redeploy $150 million of expenses so that we could invest in the consumer service, invest back in the business. That is also been going very well.
We're now 18 months into a 5-year program and have already actioned about 50% of our $150 million target. We think by the end of this year, we'll be close to two-thirds of that target. And we think there's still tons of room to make further improvements in our business. There was lots of waste, too many vendors, too many buildings-
... people in the wrong roles. So feel great about that one. So across the board, we feel delighted about where we are. Biggest pleasant surprise is how fast we've gone.
Yeah, yeah. So coming back to the, the 150, so do you still see some, some upside, if you will? Meaning upside, that you, you'll get there sooner, or that the number can be bigger over time, or both?
I'm not ready to up the $150 yet- ... but I think the earlier—I mean, so we're at, we're 18 months in, and we're 50% along the way-
... of a five-year journey, so we're ahead.
Yeah.
I can see how we can get there faster for the whole amount.
Right.
I might expect the remaining $130 to stretch over three years.
Yeah, yeah, yeah. I wanted to ask you about just what you're seeing in the macro backdrop, because, you know, it's interesting, there's, like, a lot of crosscurrents out there right now, and you're seeing some companies who serve kind of a lower-income cohort talk about some softness, you know, in consumer spending. What's Western Union seeing? You know, because obviously there's been an accumulation of inflation, rates are high. So what's your take?
Yeah, so we've been monitoring this for a very long time.
But in my two-year tenure, we've seen our PPT, which is the primary measure we'd monitor, which is principal per transaction, it has largely stayed flat over the last two years. There's been some quarters where it's up, there's been some where it's flattish. So we've seen a very resilient customer. I think that's partially to the fact that we're not a discretionary spend necessarily. They're trying to support their family back home. They're putting this above their other ancillary needs and wants, but we've seen it being very sticky. We've also seen the number of transactions per customer being flat, holistically and up in our digital business.
Yeah, no, that's good to hear. I mean, I get it and it does make sense, right? Like you said, it's kind of mission-critical funds, right, that they're sending home. So, maybe just they're scrimping in other ways, right? To make sure they can continue to send the same amount of money back to their family. I wanted to talk about the topic of Iraq as well. It's interesting because obviously it's been a nice, unexpected tailwind for you for a period of time now.
Maybe for some people who are less familiar, talk about how some of those regulatory-related tailwinds emerged, what the tailwind was last year, what you're expecting for this year, and when does this, kind of in a base case scenario, when does this kind of peter out?
It's my favorite question, David. I would love to talk about Iraq. I never thought I'd talk about it as much as I have since I've been here.
But last year, early Q1, the US Fed and the Central Bank of Iraq changed how their rules work for sending money across the border for banks. When they did that, they, they knew they were shutting down the banks, going to make it harder for their citizens to be able to send money out of the country. They actually, they didn't call us up and tell us. I wish they had.
Yeah.
But they knew in the meeting they were having, that people might find their way to the remittance market, which is primarily us out of Iraq. That happened early Q1. We started to see a ramp-up in March timeframe of last year. We had about $25-$30 million of revenue in Q1, $250 million for the full year, $120 million in Q2 last year. So it's been a little bit of a small quarter, really massive quarter, then came back down. End of the year, I believe, was $30 million for Q4. As far as how long it lasts, we've had a challenge almost every quarter. But what we spent time on over the last six months on this is: how do you provide backups? How do you work closer with the US Fed?
We've been working with them very closely all year long, and the Treasury, working with the Central Bank of Iraq. And one of the things we talked about our year-end calls, that we had our correspondent bank who wanted to de-risk the market and wanted to stop, moving money out of Iraq. That has occurred, and they actually exited the market here very recently. But during that timeframe, we found an alternative solution, and that required work with a couple of different parties, including the Central Bank of Iraq. That is what led us to give out guidance for the remainder of the year. We think it'll be somewhere between $10 million and $30 million a quarter, bring in the full year.
Q1 was $60 million, so it brings the full year to somewhere, call it, $90-$150 million. But the reason why we gave such a broad range is, it's a, it's a very fluid market. We have seen strong predictability now for several months in a row, but you never know.
Yeah. No, exactly. Exactly. So, so let's just think about... You touched on this a little bit already, about, about retail. Let's put Iraq on the side.
Right? Just underlying retail. Like you said, you've been pleased with the trajectory. Where do we go from here? I mean, do you expect the second half to look better than the first half? Do you expect 2025 to look better than 2024? Let's start there, and then I kind of have a follow-up to that.
Yep. So just going back to your first question, I'll it'll answer the second one. So our guidance we gave at our Investor Day was last year was gonna be down 2-4 for the whole company. We didn't give retail guidance.
Right.
This year will be between down 0%-2%, and next year, 0%-2% positive. We still feel very good about the trajectory we're on. We feel like our retail business has now been flattish for three quarters in a row. We feel like there's a whole lot of upside still from the strength of the relations we've built with our agent partners, with the technology we've put in place, the work we've done around our sales force and tying them to profitability and growth in the markets they're in. So we feel like the back half of the year should be stronger than the front half of the year on retail-
Okay.
And we'll continue into next year. We think there's a long runway on this.
Okay. So I wanted to then dive a little deeper into some of the initiatives that have driven the improvement in the retail business. You know, point of sale, you touched on briefly. Agent relationships, I think you touched on briefly. Maybe if you can unpack that a little bit. And, and as part of that, just, you know, obviously, a lot of people in the investment community continue to, to debate: Is there a structural headwind in retail money transfer? Not Western Union specific, right, but just for that channel. So maybe you can address that as well-
... what your perspective is there?
Yeah. So some of the things we've done, I'll go, I'll go technology first.
Okay.
So we've been working on our point of sale for the last 18 months. We've introduced a number of new solutions, something called Quick Resend, which allows our agents to... You walk in, you want to send a transaction, it'll pull up your last 5 receivers, the amounts, so you can then send the same person. It speeds up the process of the agent. Their biggest challenge is labor costs and getting them through the queue as fast as possible. Another technology we've launched is Remember Me, which allows them to pull up one of a number of data points to your entire profile, rather than having to give all your information every single time. A third example would be One-Step Refund .
Before agents had to call our call center to do refunds, which you shrug your shoulders and go: "How could that ever be in the twenty-first century?" I got it. All three of these things seem very basic.
Yeah.
But they're all about how do you improve that customer and agent satisfaction, speed up the process, have our customers be as sticky as possible. On the salesperson side, account manager, we've changed their comp program so that now they're being compensated based on growing their market, where before they were being paid by planting flags. So trying to get alignment between our shareholders and our employees.
Same kind of concept for our agents. We used to be a company that gave a lot of large signing bonuses. We've tried to de-emphasize that and move more to performance bonuses.
We want to pay our agents as much as they can earn, happy to pay them more, but we'd like them to grow. We'd like to grow with them and have the pie get bigger over time, which I think leads to your final question of: Can this market grow? And there's still millions of people migrating borders. The developed markets around the world need immigration to help support those markets. Most immigrants or are kind of the blue-collar-type immigrants or people migrating, are usually starting out and using retail, not digital-
... because they don't have a banking relationship when they cross the border.
Right.
So we think there is a place for this. Everybody always asks us, because I think it may have been our leadership before programming the world to think it this way, but there's always a question about, can you grow retail? Is it going to be shrinking forever?
You look at all of our competitors. They have been growing retail for many years because we've been a share donor.
So when you look at the overall market, we believe this market is a flattish market, and it's, it's very attainable to get to flat level.
Okay. So that would obviously be an improvement versus what we had seen for a period of time, right?
If you look at our algorithm, you've got 30% of our business between digital and consumer services, and you've got 70% retail.
Right.
If you get the flat on the retail side and you get the double-digit on the other 30%, you can quickly start getting your head around how you can grow this thing 2%-3% or more.
Right. Yeah, exactly. With the whole... Like you said, the whole algorithm starts to
starts to shift a little bit. Right. So, you mentioned market share. Let's talk about that. I wanted to get your sense initially just on the retail side of that. You know, obviously, there are certain corridors that, to this day, continue to be kinda disproportionately important. Maybe, maybe you can kinda step through some of the major ones and to what extent you've seen any, you know, shifts in share. I'm, I'm guessing maybe you... I don't know if you look at World Bank data to measure that or, you know, I'd love to get your perspective there.
Yeah. So, we're in 200 countries and territories around the world.
So we are everywhere. Some folks like to discount the cash flow benefit we get from Iraq.
We got that because we're there, we have the relationships, we have the ability to operate in that market with the banking relationships and the local relationships. So just starting out with that, we're everywhere. But to your point of what drives a market, Mexico is the largest in the world.
You've got the Philippines, you've got India. There's a handful that are large markets.
Right. Yeah.
We're doing very well. Like Mexico, we have been a share donor in Mexico for 12-18 months when I first arrived.
We've now been growing our share, even though the market as a whole has not been growing as fast as it had been before.
Right. Yeah.
We've actually been taking share now for a number of months.
Okay.
More than half the months over the last six months.
Interesting. Interesting. Okay.
We're focused on all 3 of the big markets, but we're also focused on all 200.
Sure, sure. I wanted to move on to the digital business. It, you know, it's been kind of an interesting journey there. I mean, I remember when Western Union, you know, first said they were starting wu.com, and it was like, Oh, God, seems like you're kinda late, but better late than never, right? But... And, and, you know, obviously during COVID, it surged, as it did for everybody, and then you saw some normalization. And then you talked about, obviously, the Investor Day. It was kind of one of your pillars, right? To kind of reaccelerate things. You, you made some strategic pricing decisions.
So now, if we think about kind of getting to the other side of that and lapping the impacts of some of those dynamics, when we think just kind of structurally, well, I guess kind of near term and longer term, what kind of spread should we be seeing between digital transaction growth and revenue growth?
Yeah. So in the near term, we're targeting 300-400 basis points spread for our business the whole. Longer term, we're at 200-300 basis points.
You may be wondering: Why is there a difference at all? Why would they not just converge-
... if you're averaging over time? But there are some dynamics in the market that make it move around over time and make it more, a little more lumpy. One that's a systemic difference that will be there for the foreseeable future is more and more of the business is moving into account to account. So this is someone who would initiate a transaction-
... with their bank account and sending it out to somebody else with a bank account in some other part of the world. So think about Bank of America here in the U.S., going to HSBC-
Right
... in London. We've been growing that space about 30% over the last couple of quarters. The RPT we get from an account to account is much lower than someone who does a debit card to cash or debit card to account. So we try to factor in our cost of operating into each of the pay-in methods and the payout methods to make it as agnostic as possible about whether you're a digital client or retail client, or your method for paying in and paying out.
Right. Right. Okay. No, makes sense. And, I guess when you think about the digital revenue growth, you know, you've articulated this plan to get it back to double digits. You know, what's the timeline on that? And, I guess once you get it back there, you know, do you see that as sustainable? I mean, just assuming, let's say, a stable macro backdrop.
Yeah. So the research we've done, and you can see this in the public competitors, we believe it's a double-digit growing market. We believe that you can grow just getting your fair share and holding share double digit. As you probably know, we grew Q3 last year, 3%, then we went to 5%, and then Q1 was 9%. So we're well on our way to double-digit growth. We think we'll get there late this year, early next year, and we're pretty confident once you get there, you can keep keeping your fair market share, be a double-digit grower.
Right. Right. So I guess that's the key, right? Maintain share. And are you still seeing that pretty much being almost all additive, you know, as far as, you know, the digital users coming onto the platform as opposed to it being cannibalistic from the retail side? Has anything changed there?
Yeah, yeah. So I don't know that a ton's changed there. We've got a few more. We're trying to break down the wall between retail and digital.
Just to give you a couple of factoids in a story. Factoid is 5% of our new customers last year came from the retail side of our net, our net new adds.
Five percent.
Five percent.
Okay.
But what we've been trying to do over the last two years is Devin's moved the company away from running it as a retail business and a digital business, where there was a Chinese wall between the two, and we've moved to a regional structure where you've got a regional leader for each of our six regions around the world, who they shouldn't care whether you're a retail customer or digital customer. We want you to be a Western Union customer, and some days you may want to be retail, some days you want to be digital.
We're agnostic to that concept, whereas before, the company was trying to migrate everybody over or be net new only to digital.
We make good profit on both sides. We want you to be a customer.
Right. Right. You want the customer to think about Western Union holistically, right?
Maybe sometimes retail meets my needs, sometimes digital meets my needs.
And one of the things we've done recently to help us there is we just launched recently our new loyalty program in France. The loyalty program we previously had was largely a digital program
Now we've launched it where it's actually using a single customer view, and whether you're a retail customer in France or whether you're a digital customer in France or you're an omni customer in France, you'll be able to cross-pollinate between that, your points, be able to look up your transactions, see-
Right
... activity, and we're working on rolling that out further, but our goal is you are a customer. It doesn't matter where you are.
Right. And how are you thinking more broadly about loyalty and rewards? Is that going to become a bigger part of the whole kind of consumer value proposition of using Western Union? And, you know, can you use maybe some of the cost saves from your, you know, your cost takeout plan to fund some of that?
Yes, a few thoughts there. One is I'm less focused on whether we can--how you fund it, 'cause-
... if you have a customer who's loyal, as we've talked about in the past, every 1% improvement in our retention is worth $40 million.
So, I have plenty of money to spend-
Right
... if it drives retention.
Exactly.
We're early days in the program itself. It's been in the market for 6 weeks. We were talking about it a little bit earlier in one of the sessions. It's amazing how impactful a loyalty program can be. We were in a location in Paris, and we were talking to the person running the store, and then one of their customers walked in, and at some point, one of our folks, because we were blocking their aisle, I mean, been one of our locations, sometimes they're narrow. You can't squeeze 5 executives in there trying to talk to someone-
... and then have customers come in. So this customer comes in, and one of their people whisper in French to the lady, "Hey, that's Devin McGranahan. He's the CEO of Western Union." This lady lit up. She went into her purse, and she pulled out her gold Western Union loyalty card that she's had for 12 years
that didn't actually accumulate points anymore, hadn't been an active program in many, many years, but was just so excited that she had so much pride, that she had this piece of plastic that said Western Union on it. So it made me have a whole lot more confidence that loyalty can move the needle. You've got a population who don't have an American Express card or whatever your whatever your brand thing is that lets you have
Right
... some affinity towards a brand. These, our customers, we can be that for them. And this lady helped me understand that and see that when we were with her in Paris.
Right. Right. Who else in the financial services world, especially giving them kind of credit for being a customer, right?
Right.
So let me ask you about Lat Am. That corridor has been a really nice bright spot, actually. Can you take us through just... I mean, have you made any specific strategic changes there, or what's kind of driven that and just sustainability of it?
Yeah. So it's been a very good market for a number of years. We're very excited about our, our management team down there has been very, have been around for a number of years. We've got a large number of master agents throughout that market. We've got a digital platform that's growing. It's been growing 30%-40% for years. It's mainly still a retail market, though.
So the digital is still fledgling but growing fast. And then it's a unique market where we have the vast majority of our agent locations that we own as a company, are actually based in Latin America. So as a company, we have about 800 company-owned stores. The vast, vast majority of those are throughout the Latin American market.... As you know, or probably know, we have now launched our digital wallet in two geographies now in Latin America. We've launched it in Argentina, and it's plugged into our Pago Fácil bill pay business.
And then we just recently went live, maybe about a month, 5-6 weeks ago, in Brazil.
Right.
And the benefit of both those for us is, we've been talking about it for a number of months now around how to use the Retail Digital Escalator . And when you actually control your footprint, you have the ability to help upgrade people from a retail client to your wallet, create an omni-channel experience. And a good example in Argentina, where we were able to do that, sign them up, now you have receivers who were doing bill pay coming into our locations, and then they may have people in other parts of the world sending them money. Instead of paying it out in an agent location where we're paying a commission-
Right
... we're able to load it in the wallet and then pay your bill pay out of your wallet.
Now we're saving on the commission, and we're making money on the bill pays.
And we're seeing pretty good adoption of that, that kind of process working.
Yeah. So you create, like, a monetization flywheel-
Yeah, more of an ecosystem now-
Yeah
... where closed-loop ecosystem.
Right. Exactly. So what are the digital wallet rollout plans? You know, I know you had kind of started in parts of Europe, right? And now you said you've got a little bit in LATAM. Where do we go from here? And I guess in maybe the initial countries that you launched it in, have there been some lessons learned or observations worth sharing?
Yeah, there's two or three questions there. Just a reminder, we're live now in six geographies.
So, we're live in Poland, Germany, Romania, Italy, Argentina, Brazil. The European ones have been live now for 18+ months, the Latin American ones very recently in 4-6 months. And the next one coming will be North America, U.S. Beyond that, we would not publicly announce it. Learnings, we want to move with pace we did the European one, and we put into those 4 markets a second app. We put a wallet app in even though we already had a remittance app. And we knew that it could be a problem because it's confusion in the market. How do you market to people? How do you convince which customer goes to which one? But we wanted to move with pace, because trying to have an integrated app of both of them would have taken much longer.
Unfortunately, that hypothesis turned out to be true. Was it a bad decision? No, we've learned a lot, so I don't- I won't mark it up as a bad decision.
Right.
But it's made us pause and go a little slower on the subsequent launches-
... because we want to make sure we don't put more apps into the marketplace. So right now, we're well on our way to working through a single app solution.
Go down the market, get that test, and that will then drive the next evolution of these rollouts.
When does the U.S. come?
It will be later this year. The plan.
Okay. All right, so we'll be on the lookout for that. In our last couple of minutes, I want to talk about numbers a little bit.
So we've talked a lot about strategy. Margins, you know, I think you've made a pretty firm commitment to call it the 19%-20% range, right, on adjusted operating margin. What are really the OpEx spending priorities underneath that? And I guess how comfortable are you sort of, you know, with that range from kind of a longer-term perspective? I mean, is there a point in time where that range can move up a little bit because revenue growth is improving, and you just have operating leverage, or just conceptually, how we should look at it?
Yeah. So unpack three things there. Very committed to the 19%-21% for the remaining 18-month horizon we have in our 3-year plan-
... we put out there. We felt like that 200 basis point spread gave us a lot of flexibility in any given year. If a good strategic option came up, you can go reinvest.
We weren't so certain about the pace of our cost deployment program and how fast we'd be able to free up the $250 million. As we talked about earlier, that's come a little bit faster, and it's given us more flexibility. So we've been able to stay towards the middle part or last year, even above the middle part of that range. Longer term, this business has 60% variable, 40% fixed. As you accelerate growth, it should provide opportunity, but if we have the opportunity to invest for even further growth in the future, we would do that. If we don't, we would grow margins and return to our shareholders.
So that's a good segue to last topic. You know, Western Union, I mean, even historically, when, you know, there were some bigger challenges from a top-line per... The cash flow was always pretty robust in this business, right? So how are you thinking about deploying that? Obviously, you've got a pretty healthy dividend. So really just talk us through sort of the buybacks versus M&A equation and what's happening in your M&A pipeline right now?
Yep, certainly. For everybody in the room, still 100% committed to our dividend.
Where else can you go and get a 7%-8% yield right now? Not a lot of places that have good coverage for that.
Right.
But beyond that, we still, over the last two years, we've generated $1.5 billion of free cash flow we shared to our shareholders. Half that was dividends, half that was share buyback. We did no acquisitions over the last two years. Evaluated lots of different things. We look at every retail player, every digital player, but we are everywhere already, so it's got to be-
... a strong financial buy to go do that. Where our M&A focus really is, is on the consumer services side. We can do something that'll accelerate on the consumer service side, come with a license, product or solution we don't have, and can accelerate that roadmap. We're very interested at the right price, but we're very diligent. We are very conscious that our price, our share price is cheap, and can you actually get a deal done at a price that makes sense, or should you give the money back to your shareholders?
Right. All right. Well, we'll get an update next year, hopefully.
Awesome. Thank you.
Appreciate it. Thank you very much.