All right, so next up, I'm delighted to have Devin McGranahan here, CEO of Western Union. Devin's been here since 2021, and prior to that, you were a senior group president at Fiserv, where you oversaw the company's global merchant acquiring and processing businesses, including a number of Clover and Carat launches, so Devin, long career, happy to have you here, and looking forward to the discussion.
It's great to be here. Thanks for having us. It's a great conference.
Yeah. So Devin, you know, to kick things off, there's been a number of initiatives that you announced back at your inaugural Investor Day, where you announced the Evolve 2025 targets. The team's been working diligently against those goals. Could you talk about kind of what you've accomplished so far, and kind of what's left on the roadmap as you zero in on those targets?
Great question. Thanks. And so just to reframe for everybody, we basically put out a three-pillar strategy. One was stabilizing the retail businesses. Those who had followed the story for a long time, the retail business had been perpetually declining, which when you have, you know, $3-plus billion of revenue shrinking mid-single digits, it's tough to grow the company. The second was to reinvigorate our digital business. When I joined the company, our digital business was growing revenue, low single digits and shrinking transactions. Low single digits was, again, not a recipe for long-term success. And then we talked about building out an ecosystem, a set of products and services, which we now have called Consumer Services to leverage the great customer acquisition engine that is Western Union and bring new products and services.
So working from the value proposition to kind of operational execution, to delivery, in the second quarter, we were pleased with our fourth consecutive kind of mid-single-digit transaction growth for the company. We had successfully lapped the increase in transaction growth in our digital business, and actually increased another one hundred basis points to 13% transaction growth in our digital business. And we have largely stabilized the transaction growth in our retail business, plus we did 14% revenue growth in Consumer Services. We are continuing to shrink the gap between the transaction growth and the revenue growth. We saw retail close another two hundred basis points. There was some rockiness between the first quarter and the second quarter with revenue and digital.
We went from nine to seven, but we had talked in the first quarter that we fully expected that in the second quarter because of the leap year and the calendar closed dates.
Easter and other events
...in the first quarter, Easter. We had two holidays in the first quarter that would normally be one in the first quarter, second quarter, like Easter and Ramadan. And so it was entirely expected that that was going to happen. So we're pleased with the progress we're making. Consumer Services will be solid double-digit revenue for the year, as we've talked about. We'll continue double-digit transaction growth. In digital, we'll continue to close the gap between revenue and our ongoing efforts, which we have said will both take longer and be less dramatic, and retail will continue slowly making progress on stabilizing that business. So very pleased with the progress we've made in, you know, what's roughly now been two years.
We launched that in October of 2025... 2022.
So yeah, great overview. Maybe we can talk about, you know, the end customer. I think most people think of remittances as a relatively defensive business, particularly relative to just traditional consumer payments. What are you seeing on the ground today? Has there been any change in the behavior against some of the anecdotal evidence we've heard in the market around struggling low-income consumers?
Our consumer has been exceptionally resilient. We had a lot of concern eighteen months ago. We publicly talked about it. Inflation has an outsized effect on the low-end consumer, and so we were quite worried about the inflationary environment and the erosion of purchasing power, which would erode their ability to send money home, wage gains at the lower end and continued strong employment for kind of the lower end of employment has held, and our average PPT has been, you know, mostly flat, a little bit up ex-Iraq.
Yep
... over the last 18-24 months. And so we've seen transactions for customers grow, PPT remain relatively flat. Our consumer has been, relatively resilient. We have started to see some rockiness, in South America, in LACA. We've had a couple of elections in the last couple both in Mexico and Venezuela, Colombia. There's a new president in Costa Rica, who's kind of closed down the Darien Gap. So we're seeing some dislocation in that market. But globally, we continue to see, you know, continuing trends with relative resilience in, in our core customer group.
And just because you mentioned it, the LACA trends, have those gotten incrementally worse this quarter? Just wanted to kind of zero in on that's kind of newer, or if-
Yeah, we talked a little bit about it in the second quarter, because we've seen, you know, in my tenure, LACA had been the one region that was growing, you know, mid to upper single digits, where most of the rest of the world was negative, and so it was always kind of a stalwart. Turns out we're actually doing, you know, better in the rest of the world as kind of this geopolitical dislocation gets sorted out.
Yeah.
A lot of volatility in the Mexican peso. We talked about that in the second quarter. We had some small losses for the pesos we hold because of the one-and-two-day volatility-
Yeah
... a couple of days around the election. I'm sorry. I'm more messaging it's a volatile region, and, you know, we're going to continue to watch it-
Yeah
... in terms of where it's going.
Makes sense. Okay, so on strategy, I think one of the questions we commonly get around the company's ability to deliver strong digital transaction and revenue growth trends without diluting the value to the retail business, and you've kind of framed, you know, this concept of a retail to digital escalator over time. How do you think about kind of managing the two channels?
You know, one of the things I've talked about, and we talked about this also when we were switched from kind of the metric we were using in omni-channel. The retail business really is, you know, more of a flow of customers, right? So, you know, we acquire twenty million plus new retail customers every year. I've publicly talked about our mid-50% retention rate in retail. People come and go in the retail business. New migrants, almost to a T, unless you're a high-end software developer, when you show up in a new country, by definition, you don't have a bank account, you don't have access to payment products. You're conducting your life in the cash economy, and you're sending money home in the retail environment. So we see the retail channel as a way to get to know a customer.
We do KYC, and we can make for those who are staying in the remittance product, they haven't gone home, they haven't stopped sending money home, the journey to digital much easier than for a new customer, and the economics are certainly a lot better than those that you would get when you, you know, acquire a customer on Google or Facebook or someplace, right? And so our digital customers who started out in our retail business are a factor better than our customers that we acquired purely in a digital sense. So it's a focus of the company. I worry less about kind of channel conflict. It's about being where the customer is when the customer wants to transact, and for retail customers who decide they want to transact digitally, making it super easy for them to do that with Western Union.
Yeah. So you touched on it a bit there. I'm jumping ahead a bit, but, you know, just-
Just the last thing that also-
Sorry.
We've also aligned the pricing between our channels a lot better. So before we had oddities where it was actually cheaper to do a retail transaction in some quarters than a digital transaction, which then why would you transact?
Yeah.
Why would you migrate, right? And so now we've got a much more logical construct between retail and digital-
Yeah
- pricing.
Yep, that makes sense. You hit on it a second ago, I just wanted to maybe jump ahead a bit. You know, specific follow-up on U.S. immigration trends, you know, there's this perception that the remittance market would be a net loser if the U.S. were to take a harder line on immigration. Could you maybe just help our investors understand the impact that immigration has, both documented and undocumented, and then how you're thinking about policy risks associated with the election?
Yeah. So just go back to the fundamentals of the business. 80% of our transactions in any given year come from customers who's already transacted with us. The predominance of my business are migrants that are already in the U.S. or in any country in which they're doing it. So in the short term, any change in policy in Europe, any change in policy in the United States, any change in policy in the Middle East, remembering we're also a very global business, so-
Yeah
… While U.S. politics is interesting and relevant, it's certainly not the end all and be all in my business. But changes in policy anywhere in the world, and immigration is a hot topic anywhere in the world, have very little near-term impact. And it's longer term as flows of customers across borders slow, right? So then your ability to acquire new customers goes down. So while we'll be interested in the election, what we're more interested in is, regardless of who wins, can the U.S. Congress, with whatever president we have, and we got close to it in the spring, can they get to a rationalization of immigration policy that would establish clarity for immigrants, for businesses, for the border? And in such a world, we'll benefit regardless of whether it goes harder or softer than where we are now.
It's the clarity that will really matter so that-
Mm-hmm
... people can conduct their lives and their businesses accordingly. Longer term, there is no way in which migration across borders can go down if the people who live in G7 nations wish to maintain their standard of living. Birth rates have gone down. Working populations in all of the developed countries around the world are shrinking. And so if large developed countries with productive economies want to continue that, they have to have inbound migration from lower productivity countries.
Yeah, makes sense. Maybe switching gears a bit to the competitive environment. I think around the time of our earnings, a couple comments stood out. You highlighted some of the changes around the competitive environment, specifically around some of the local corridor participants, and it was, you know, basically better pricing trends, less competition, people exiting the market. Can you talk about what you're seeing, expand on that a bit, you know, and how you think the competitive environment evolves?
Yeah. So turns out, cross-border remittance is a capital-intensive business, and when capital is free, people behave irrationally as interest rates have gone up. Oh, it's also a scale business.
Mm.
It's a scale business that's capital intensive. As interest rates have gone up, you've seen more of the marginal players no longer being able to compete. On the call, it hadn't yet been publicly declared, but we saw a Small World exit. They went into insolvency sometime in early July. They were a pretty big player in Europe. They were growing presence here in the U.S. It was just an example of a PE-backed player who was a relatively reasonable size, who in a elevated interest rate environment, couldn't pay the bills anymore and closed their doors. We see more rationality. You know, we saw that in the World Bank data in 2023. It's one of the first times remittance pricing had gone up. World Bank noted that.
And so we believe that, you know, in this environment, we'll continue to see that. And, you know, lots of people were raising questions when we became more competitive, would that spark a downward spiral in the market? And we've actually seen almost the opposite, which in many places where we've become more competitive, people have, you know, reacted by moving the other way versus, trying to go one below us, right? So.
Great. You know, Western Union's always had, you know, such a sticky business over time as a function of the ability to basically reach any corner of the globe in a very short amount of time. As digital adoption accelerates, how has your strategy around the agent network evolved?
So the agent network is very important to us. As I've talked about many times, on the send side, we view it as the gateway to Western Union. It's the customer acquisition vehicle that's exceptionally low cost. People walk in, they see the Western Union sign, they send money. On the payout side, those relationships are very important to us. A large percentage of our digitally originated transactions are still paid out to account or paid out to cash, and so those payout networks around the world are important, and we maintain a competitive advantage in that. And then, you know, we have been building an equivalent payout network to account.
I think we have over three billion endpoints in our payout network to account, which allows, again, someone who wants to send to account anywhere in the world, to be able to do so seamlessly, many times in real time. So the value proposition continues regardless of whether the recipient wants cash or they want it deposited in their digital wallet, or they want it deposited in their bank account. Great example is in the Philippines, which was historically a very large payout to cash business. You know, we've seen the growth in payout to account in the Philippines. One in five Filipinos has a GCash account, right? And so, you know, we recognize that trend and are building out the network to kind of manage the transition. Payout to account has significantly better economics on a unit basis margin percentage than payout to cash.
And so that's where, you know, other than a transition period, it's actually good for our business.
Yeah. You know, driving repeat transactions and customer retention was a major focus in the original Investor Day. Is there anything you could share about sort of recent cohort behavior and, you know, the progress that you've made on retention?
Yeah. So, you know, we talked about it at the end of the year. We've seen, and we talk about it once a year.
Yep.
You know, we saw retention improvements across the majority of our business in 2023. In particular, we've seen decent retention improvements across the cohort of new digital customers that we acquired once we changed our go-to-market strategy. So if you'll recall back to 2022 and early 2023, we put back into the offer new customer acquisition offers, first transaction free, half off your first transaction, and there was a great deal of concern that we would be acquiring price shoppers with lower durability and retention than our historical business, and it's been exactly the opposite. Those customers that we've acquired since 2022 are showing higher retention, higher transactions per customer, and higher principal per customer across the board.
And so we're acquiring a higher quality customer, which is translating into increased retention, which is part of, and lots of conversation about, whether the durability of the transaction growth would be sustainable. In the second quarter, we grew over 12% transaction growth in 2023, and accelerated by 100 basis points to 13%.
Right.
And part of that durability is the increased retention that we're seeing from the newly acquired customers.
Great. So you've also announced several new products and features, including a new retail POS system and your next generation digital app and wallet. What's been the early feedback that you're hearing from agents and customers on some of these improvements?
So it's universally positive. We have significantly reduced transaction times, and we're, you know, continuing on that journey. I have a team right now in Spain who is piloting the next iteration of our accelerated transaction time, and I was telling some folks I've got a little video of them doing a transaction in a little over one minute, which is down significantly from the seven and a half minutes when I first joined. We used to treat every customer, regardless... Remember, 80% of transactions comes from people we've done transactions, like we'd never seen you. So name, phone number, documents, contact information, who are you sending to? What's your occupation? What's your reason for sending? Every single time, right?
This idea of quick resend and remember me, we've replumbed our point of sale systems to work on a customer basis instead of a transaction basis. So now you walk up and you say, "Hi, I'm Devin." You say, "Okay, your phone number, please. Tututu. Can I verify your ID?" Now they're looking at a screen of the ID we've already captured. "Yep, it's you. Done." And then, if you want to redo a repeat transaction, system retains your last 10 transactions, says, "Oh, I want to send to my mom again." "Same $200?" "Yep." Two clicks, and you're done, right? And so that rethinking how Western Union goes to market, instead of being a transaction processor, to be a customer relationship-oriented person, is both improving the customer experience, it's reducing time for the agents, and it's reducing friction.
When I got here, we were taking 32 million phone calls a year. This year, we'll take less than 17 million. So we've cut that need to have an agent or a human interacting with you to complete a transaction by half.
... Yeah, that's great. You know, another slight tweak to the Evolve 2025 strategy was the addition of a new target to grow what is now called Consumer Services revenue, double digits. You mentioned this earlier. It's historically been the kind of bill pay and retail money order products. What do you expect to be the biggest driver of the double-digit growth in Consumer Services going forward?
You know, I actually think it might have been you. Sometime, it was in the first quarter or the second quarter of 2023, you asked me if we were gonna become a company of other, because we were growing other, you know, double digits while the rest of the business was shrinking. And so that was the insight to maybe not call it other.
Yeah.
But to rename it Consumer Services, so thank you very much. Look, we're very excited about it. As you know, the base of the business is our traditional transaction products of retail money order and bill pay, but we've added in there our prepaid product. We've added in there foreign exchange services in multiple countries around the world. We've added in there, we talked about it for the first time last quarter, this advertising network that we've built here in the U.S. And so it is the addition of incremental products and the expansion of those products across geographies, which gives us real confidence that, you know, this is a double-digit grower for the foreseeable future.
Yeah.
Again, we had 14% in the second quarter and reiterated that we, you know, see double-digit growth for the year, even though it was only 8% in the first quarter.
Yeah, makes sense. All right, the company's deployed a number of new marketing initiatives to attract customer usage, which included first transaction fee and then some more market-specific pricing techniques. Where are you at now in the rollout of the pricing initiatives? Do you see stronger transaction growth across both retail and digital as sustainable as you lap these? You maybe just hit on that latter part on the digital side.
Yeah. And look, we've talked a lot about the pricing. We'll be lapping the last of the digital significant digital pricing, recognizing we're doing pricing every single day. We have 20,000 corridors, et cetera. But you know, the structural pricing in digital in the third quarter, which we finished, we rolled that out in the Australia region in the third quarter of 2023, and we'll lap the retail ones by the end of this year. But while there's a lot of focus on the pricing, there was a lot that also went with. On the retail side, we're talking about increased transaction fees. We rolled out a new loyalty program. On the digital side, we've significantly improved funnel effectiveness rates. We're improving retention with the new cohorts.
There's a lot more to the durability of the transaction growth performance than just the pricing. The pricing, remember, when I launched the program, I said, "First, you got to acquire new customers. Those customers will translate into transactions, which will translate into revenue." The new customer offers put us back in the market as relevant for new customers. It's all the rest of the work that keeps the funnel driving the transactions and the revenue.
Okay. So maybe pivoting to Iraq, I doubt when you joined the company, you thought we'd spend this much time talking about it. There was an interesting article in the Journal earlier this week that maybe helped those of us on the outside understand some of the backstory about what's been happening there a little bit better. But curious if there's any update that you can share on kind of where we stand now and, you know, your thoughts on the revenue contributor for this year and sort of how that market may evolve.
Yeah. So the article was fantastic because it really did lay out what we've been talking about in terms of, you know, the change in policy, banks exiting the cross-border market, across all facets. We were a net beneficiary, particularly for consumers and small businesses who could no longer do any kind of bank transaction. As you know, that was $120 million of revenue in the second quarter of 2023. In the second quarter of 2024, that was $34 million revenue. So, you know, the big run up that came with that change has largely started coming out of the system.
You know, we believe the business that we have there is now a better business than it was before all this started, 'cause as you can imagine, management paid very little attention to a small business in a difficult country relative to the other, you know, 80 countries that we're in. But when it started to have the kind of growth and acceleration, we obviously paid a lot more attention to it. So we now have a digital offer in the country. We've got the retail agents in the country. But it is a fluid situation, and it will continue to evolve. My anticipation, you know, we gave guidance at the beginning of the year, 10 to 30. Obviously, the first quarter was not within that guidance. We were significantly above. Second quarter was pretty close to that guidance at 34.
My anticipation is we will be at the low end of that guidance, this quarter and in the fourth quarter, given the continuing changes and the stance of the U.S. government as articulated in that about the central bank policies in Iraq, so you know, I would be thinking of it much more on the low end of our guidance in both quarters for the rest of the year than either at the middle or the high end as it was in the first quarter.
Makes sense. It's very helpful. Okay, so sticking with the overall topic, on the retail side, stabilizing retail revenue growth is a key part of the Evolve 2025 strategy. You mentioned kind of closing the gap on the between retail revenue growth and the transaction growth for the remainder of this year. How are you thinking about the cadence over time, and then where do you think that sort of stabilizes longer term?
Yeah, no. So I'm very clear in the long run, you know, we're gonna get to 300-400 basis points difference. In the long, long run, we'll get to, like, 200 basis points. In the medium term, we'll get to 300-400 basis points. But my real goal is to continue to drive the growth of the business, and we've said this publicly. Our goal is not to accelerate the closure of that gap. I could do that. My goal is to build a structurally strong business that continue to grow, particularly in the digital, mid-teens to high teens, and we're gonna continue driving for that.
Over time, we will see the gap close. The objective function is to grow the business and grow revenue, not necessarily accelerate the closure of the gap. We're very indexed on growing the business. We manage the gap. The gap is a function of the pricing, which we will grow over by the end of this third quarter. The structural components to what we're doing, which is accelerating the payout to account. We've talked about that part of the business growing 30+%, and the fact that we're indexing on higher growth corridors, including Mexico, India, Philippines, all of which generally have lower RPTs than sending money to Afghanistan or Yemen or Syria or some other place where, you know, we're uniquely positioned, but there isn't a lot of growth in those markets.
Yeah, that makes sense. And I guess just to emphasize that last point, the pivot towards the payout to account, obviously lower RPT, but I'm sure the gross margin profile is better on that, so-
Correct.
Yeah.
We're working hard in all the important corridors of the world to strengthen our payout network, have more direct connections, which increases real-time connectivity and lowers costs. You have less intermediaries. I talked about this on the last call. We'll have much less intermediaries. The system, many of ours and many of our competitors, is built with, you know, gateways and access providers into many of these markets. The more direct connections you have, the lower the cost, the better performance. You know, we're accelerating the build-out of that part of our network everywhere around the world.
Yeah. Maybe shifting to the big picture, you know, frequently lost on investors, just the sheer size of this market. I know the World Bank puts out some estimates on the trajectory of the remittance market, you know, those get revised. Interested to see here how you think about just the outlook and the remittance base more broadly.
But the formal market, depending on who you wanna talk to, is, you know, $900 billion-$1 trillion of principal. The banks still have a large share of it, which I can't understand because it's expensive and slow. And, you know, companies like TransferWise are doing a good job of eroding that at the higher end. It is a GDP-esque grower, and we think about it that globally. But that doesn't mean in any given circumstance, it's GDP growth, right? That's spread over the whole world. And so at any given time, just like we saw with Iraq, or, you know, we'll see with corridor migration, acceleration, you know, right now, we see a lot of growth in the Middle East.
So as Saudi Arabia and the UAE are doing massive infrastructure investments, they're importing labor, many people are sending money home, so you see those pockets where you get accelerations way beyond GDP growth.
Yeah.
We like the market. We believe there's opportunity for consolidation, there's further erosion of bank share, and there's a long-term positive trajectory at GDP or slightly above GDP at the aggregate trillion-dollar market level. There's another thing that we don't talk about as much, but other people talk about, which is the informal markets. There's lots of money that moves across borders in vans and suitcases and backpacks. The more the product becomes easier to access and a reasonably priced value proposition, that, you know, alternate market or informal market becomes part of the formal market and also helps drive the growth.
Makes sense. So maybe taking a big step back, Western Union is an amazingly geographically diverse business. When you look around the world, where are you most excited about, in terms of the opportunities for the market for Western Union to grow?
Yeah.
You just talked a little bit about the Middle East.
Yep. So Middle East is a strong business. It's tough to see in our numbers 'cause it gets swamped by Iraq. APAC is a super interesting business for us. We've made material investments since I became the CEO, recognizing, you know, 40% of the population of the world lives there. It's not only growing as an inbound market, but in many cases... I was just in Indonesia two weeks ago. There's 53 million middle-class people in Indonesia, right? It is a middle class that's as large as ours here in the United States. You know, one of the, it's a great place.
Most people know it for Bali, but one of the biggest populations in Indonesia is the Muslim community, and one of the, you know, things that people seek once they begin to have some wealth is a trip to Mecca, right? And so, you know, that involves, you know, foreign exchange, that involves paying for your hotels, that involves sending money ahead of your trip, maybe even sending money home. And so that kind of business for us is growing in Asia. Middle-class students exiting these countries to get educations in Australia or to get educations in Europe or the United States. That all then has a trail of remittance that comes with it when you're sending money for books, when you're sending money for living expenses.
And so we see Asia as a super interesting, not just as a receive market, which was historically Western Union's perspective, but as an increasingly, dynamic send market.
Yeah. Exciting. Maybe switching gears to a maybe less exciting topic, but nonetheless, the dismal science of managing margins and expenses. I think it's been very notable since you took over, very clear messaging around the commitment to the operating target range that you set out. I think this year you're managing to a slightly different cadence for operating margins than the last couple of years, but nonetheless within the range. So how are you thinking about the pace of investments and, you know, the longer term trajectory of margins beyond the Evolve 2025 investment period?
Yeah, look, we've been pretty transparent since I became the CEO that we would significantly invest in the products, platforms, and go-to-market of this company, which we've been doing. But we would do it in a shareholder responsible way, maintaining not just the margin targets, the margin, but the return to shareholders, both with a strong commitment to our dividend, and then capital returns when we have an excess of that through share buyback, right, and I think we've been pretty good about that for the last two and a half years, and also managed to invest significantly in improving our market competitiveness, building out new platforms on the retail side.
One of the things I talked about was our Australia business in the second quarter, and showed the combination of our new digital product and platform with our new go-to-market. You know, that business is growing 30+% on a transaction basis and 20+% on a revenue basis. And so in the fourth quarter of last year, you know, we had some opportunity, given Iraq. We accelerated the rollout of that new digital product. I think we're now in 11 or 12 countries around the world. And so when we get opportunities, we accelerate our ability to invest and drive the future of the business, but we're gonna be responsible and continue to maintain our commitments, including our commitment to the dividend.
Okay. And just on that note, capital allocation's always been kind of a hallmark of the Western Union story, a very healthy dividend, strong cash flow generation. What would kind of change your mind in terms of managing to a different strategy? You know, how do you think about M&A as a lever to kind of accelerate investments and, you know, what could that look like over time?
Yeah, look, we're always open to opportunities that can create value. Given my current valuation, that largely precludes overvalued high growth companies, but there are other opportunities for us to pursue. In particular, expanding the product set and capability to grow consumer services, and in some opportunities that present themselves to continue to do roll-ups or market consolidation on the core remittance side. That said, we're very disciplined about what the alternative is, which is giving the capital back to the shareholders, and at our current valuation, that's a very compelling case, given our belief in the future of this business. So-
Makes sense. I think with that, we're about out of time. Devin, any final thoughts that you'd leave the audience with today?
I appreciate being here, so thank you very much.
Of course.
I'm excited about where we are two years from our last Investor Day. We're tracking, as I said, on the second quarter, against almost all of the metrics as we hoped. We achieved company-wide positive revenue growth, ex Iraq. Someday I will be able to say without the ex anything. I had ex Russia, and then I had ex WUBS, and now I have ex Iraq. My goal in life is not to say ex to anything. But ex Iraq, we've really stabilized the business in less than two years, which is, you know, a quarter or two quarters ahead of what we had hoped for when we went on our investor stage, and I see the momentum continuing to build, so very positive about where we are.
Great. Well, with that, we're out of time.
All right.
Devin, thanks for joining us today. Really appreciate the update.
Thanks so much. Thanks, everybody.