All right, so we're live.
Excellent.
Yeah, we're having a nice conversation. Anyway, thanks for everyone for tuning in. This is Tung-Jung Hwang. I'm the Payments analyst at JP Morgan. Really excited to have Western Union back with us. Devin McGranahan, CEO, is kind enough to join us for a fireside chat. Coming off of the Investor Day, I know there's a lot to talk about, but thank you for being here, Devin.
It's our pleasure. It's always great to come. I love the perspective you have of time and distance on our company. I enjoy these very much. Thanks for having us.
Oh, of course. Always a special place in my heart. I always say it out loud, right? Western Union, one of the first names I followed when I first started, and whether it was through First Data in the old days. I have framed somewhere my Western Union initiation report. I have to show it to you one day and get you to sign it. Before we get started into the strategy, I thought we'd build into what you talked about in Investor Day, since that is very, very fresh. Before we do that, just, we've been asking everyone this. Just give us a state of the macro and the health of customers as you see it. I mean, you're in so many parts of the world. Have you seen anything that's caught your attention change-wise?
I would highlight two things, right? One, the U.S. consumer, particularly our consumer, which is what I'll call the mass market or down market, a consumer, is under duress, right? You can see it whether you look at Chipotle's numbers or McDonald's numbers. You can see that there's a two-gear economy happening in the U.S. You can see it in the big banks versus the small banks. We're seeing it, right? We're seeing in the North American market both the effects of the changes to immigration policy and our customer feeling the financial uncertainty and stress of the current economy. As you saw in the third quarter, the North American results continue to be pressured by that. Transactions down, but surprisingly, principal per transaction up, right? That means people are sending less frequently, but slightly more amounts, like up 9% or something.
Outside of the U.S., we actually see a pretty resilient economy around the world. We see some strength in the Middle East continuing, particularly in Saudi Arabia and in digital and the rapid digitization there. We see reasonable progress in Asia. The macros really are in North and South America, and in particular in North America.
How about on the regulatory side? I mean, you mentioned it briefly, but anything that you're paying close attention to? I know we had the Iraq issue last year. That sounds like it's behind us. I don't know if there could be something like that that resurfaces. I know Mexico, there was some action going on there with a few agents. Anything to update there or watch?
For us, the biggest change in the regulatory environment is the pending remittance tax. We have, I think, successfully implemented all of the technology, not just across our own agents, but across all our partners, remembering that a big chunk of our business in North America we do through Kroger, Walmart, and Albertsons. We have to ensure that they understand what has to happen in their front ends to make sure that we comply with the remittance tax. That's the biggest one. It feels like the pressure from Washington has shifted to other areas of focus now that the big, beautiful bill has worked its way through Congress. I would say it's kind of as-is status for us on the regulatory front.
From a tech and compliance readiness, you're there with the remittance tax?
Yep.
You did, before we get into some of this stuff, you mentioned Kroger, so I'll ask. You just did renew Kroger, an important name in the past as an Asian partner. What went into that? Why is this one perhaps different? I know point of sale technology and all these things are being evaluated, compliance, everything else, as well as price. Anything to learn or share from that renewal?
We started the process with Kroger probably two years ago.
Wow.
We started a dialogue with them about how retail was evolving for them and how we could partner with them in new and interesting ways as they changed their retail experience. The very traditional retail experience of Western Union behind a service desk where you sell cigarettes, lottery tickets, gift cards is evolving. It is evolving across the industry. We sat down with them and mapped out a roadmap about how we would do remittances in-lane, how we would adopt more self-service or kiosk like they have done in the grocery side. We talked to them about how we would do better linkages with the loyalty programs and how we would integrate the Western Union and the remittance experience into the overall shopping experience that they are trying to drive across their brands. We worked on that together with them for two years.
They're also going through a relatively significant upgrade to their retail point of sale system. We partnered with that with our next generation partner platform that we call Partner OS. When we got to the renewal, they were like, it certainly would make sense to continue on this journey. Having multiple remittance companies makes that more complicated. You guys have shown how much you're willing to invest and innovate. We're going to kind of single source it with you guys.
Good.
We were very pleased by that decision on their part. I think it reflects on the journey we've been on the last three years and the investments that we've made to really innovate in that retail environment with someone who's as strong a retailer as Kroger.
Right. Do you think that that's something that can be replicated now that we're seeing more modernization of the point of sale and retailers are looking to expand and be smarter with their vendor decisions? I mean, is that repeatable? Maybe that's another way to ask it.
I think it's a, if I can reframe that just a little bit. I think there's a narrative in the industry that customers have a preference for the non-exclusive independent agent channel. Certainly, there have been some smaller players, including one we just purchased, that have had success in the independent non-exclusive channel.
Sure.
I actually think, and this is partial to a proof point to it, that the original value proposition, which is you're buying groceries, while you're there, do you want to send or receive money? The convenience, the safety, and the availability of being able to conduct Western Union in a high-quality, safe, well-lit retail environment is durable. What happened is the experience degraded, particularly during COVID, where there was no staffing in the service desk, so you couldn't find someone to send money. As we talked about at the Investor Day, it was one of the places where we had significantly raised prices. Even if it was a valuable convenience, you could walk outside down the street and get 30% less for the same product or service.
Why was this channel then viable if you had service delivery problems and a value proposition that had a 30% premium on the pricing? By fixing both of those problems, innovating around the retail experience and getting to market competitive pricing, we actually think it's a great value proposition and are seeing that in that large base, which is unique to Western Union. We have all the major retailers: Publix, Kroger, Walmart, Albertsons, Walgreens. That is a differentiator and a part of our retail reinvention.
Before we dig further into retail, you mentioned the pricing. As long as I've covered Western Union, the idea was the global brand, the trust, you pay a premium for the price. You came in, I think in the third quarter of 2022, I think is when you started the shift to more market-based pricing. I had written down from the Investor Day $450 million of pricing actions that you've taken. That's a lot, Devin, notionally. It sounds like you're mostly done at this point from a pricing perspective. Is that true? Is that going to change the narrative of Western Union and this infatuation investors have with pricing?
It is a great question. Other than self-justification, there is no market-based evidence, given our growth rates relative to competitors or to the industry, that somehow premium pricing allowed us to grow. Right? There was no, and I know we said it a lot, and I know people would write it, but I never found any evidence that said somehow we have something that enables us to grow the business at a premium price. What we have found is by becoming market pricing, that value proposition of our great trusted brand, our high-quality compliance, our great distribution on both the send and the receive side, with a market competitive price, actually positions us to grow. Not just in some corridors, not just keep up with the market, which we were not doing.
I think you have heard me on stage a couple of times when I first started refer to ourselves as the industry's largest share donor, right? We watched quietly as many people took important market positions away from us because of our market positioning. We think it actually changes the narrative to say, not only can we maintain market levels of growth, we actually think we can start to become a share acquirer versus a share donor. We talked in the Investor Day, there is a number of important markets, U.S. to Guatemala, U.S. to India, France to Morocco, where we see, as a case in point, U.S. to India, we have a 5% market share, right? Largely a market as it went payout to account. We still had pricing that looked like payout to retail. We think that is a big opportunity for us. We think it should change the narrative to say, okay, now you've got a viable market competitor with a differentiated value proposition that can grow.
Competitively, if you're at market-based pricing, and we'll talk about Beyond and selling Beyond that for a moment, but if we just focus on remittances, then, Devin, what's Western Union's right to win versus the traditional money transfer players, the digital ones, the tangential ones we call them, which would include network-based or fintechs or wallets or some of the modern players even around crypto? How do you assess the landscape there, given that you are now more competitive on the pricing side?
Yeah. I would break it into two buckets. Right? The first is our 175-year history as Western Union is just fundamentally a differentiating asset in terms of what is our CAC for acquiring a customer digitally, what happens when people are on the street and they say, I need to send money someplace. We are top of mind in the category unaided. Any business that's competing to acquire customers every day, that is hard for anybody else to easily replicate. Now that we are starting to gain a reputation for being, it was always, yes, Western Union, but expensive. If it's now and Western Union, convenient, fast, and reasonably priced, no one goes to the second consideration. Now it's, well, why don't I just use Western Union?
The quality of the history of the brand around trust, around reliability, and now around accessibility, and now around fair value is a competitive advantage. The second is in digital, I think it's Remitly and then us. We have a billion-dollar digital business. In retail, it's us and then probably RIA, Euronet, and then maybe MoneyGram, and then everybody else gets much smaller. We can invest at scale at a level that fundamentally other people can't, whether that's in technology, whether that's in negotiating payout arrangements, whether that's building our own, as you heard in the Investor Day, payments network, where we're connecting directly into the banking systems, the real-time payment systems in 10 countries around the world. Right? You can't do that at scale at a smaller company. You rely on payment aggregators. You rely on the Tunes of the world or the Tarapes of the world.
Remitly doesn't even own their own payout network. They rely on RIA. They have an economic challenge and they have to pay RIA. RIA has to pay the agents. Our scale is the second real differentiator and competitive asset that historically we probably didn't take enough advantage of. Because again, if you're overpriced, making a small difference because of, you know, we have a better payout cost or you can average your technology didn't trickle into anything. When you're market competitive, those scale advantages can come through both in terms of margin and in terms of our ability to compete.
Yeah. At the Investor Day, I noted one thing that you said that I thought was important and subtle to me, but you said that you were proud of the strides that you've made in improving the tech. And it's a business that's been around for a very long time. How important is that for Western Union to be more competitive, whether it be with agents or consumers or outreach or the digital experience, that kind of thing? Is it in a good place to be competitive in your eyes?
Yeah. We are a tech company. We are a payments company. I think we lost sight of that, but we have 4,000 or 5,000 people in tech. For us, this is the competitive asset. Our ability to build, deliver high-quality technology-enabled solutions at scale around the world, not just in one country, not in three countries, 50, 60, 70, 100 countries. Right? That gives us market access in places that other people cannot easily get to, but also allows us to create those experiences and invest in that tech at a level that other people cannot. At Investor Day, we showed our point of sale system and some of our digital wallet and our next generation platforms. We have been working on those for two or three years. Right? Those are the fruition of this at-scale investing with purpose that we have been doing.
We think over time, it is the new moat. For a long time, the moat Western Union had was just a better payout network. We had more agents in Africa or more agents in Mexico or more agents in the Philippines. When that is the retail value proposition, that was our moat. Now the moat is we have more scale to manage those networks, to build a better payout to account network, and to invest in the tech. That is what will differentiate us over time.
Thinking about that investment in tech, I know that digital over the years has marched higher in terms of growth, but the initial pain was there was trouble in accessing different forms of payment and managing the risk and the fraud and the onboarding and all of those things. I know you've set some goals, adding $500 million incremental digital revenue by 2028 versus three years ago. Are you, from a tech standpoint—I think you kind of answered it—but are you on par now in your ability to go after market and have an experience in fraud rates and auth rates similar to those that are digital native?
Yep. We have the platform that is on par. Just take a country like Chile, for example. Right? Two years ago, we could not take a card payment in Chile. The only digital experience you could have was an offline bank-funded transaction. You had to go to your bank, push the money to Western Union, and then we would send it someplace in the world. Not a digital first, not a Plaid-like experience for bank account or, more simply, just card acceptance. Take a debit card. We have been working. Today, if you go to Chile, we have the full payment experience. We do direct funding from bank accounts. We take debit cards. We even take credit cards. Someone like Wise would not take credit cards. We have been building that platform.
Now, and we talked about our new Beyond digital platform that's live in Canada. The opportunity for us is the acceleration of the rollout of the platform to the world. Right? Here in the U.S., we are still on our platform that was here when I got here. We're on the generation of a platform from, call it 2020, 2021, because we weren't willing to innovate and risk the $600 million digital business in the U.S. We have plans for next year to move the U.S. to our next-generation Beyond platform, which we've been working on for two or three years and feel it is in everything when I said we're becoming a digital-first company, that platform manifests being a digital-first company.
Okay. I know we're skipping around as the last one hit, but thinking about the platform and the payouts and use that Chile example. I thought the next-gen payment network discussion at the Investor Day was really good in the sense that everyone's talking about payments and payouts and real-time payments. You have so many nodes across the network and the trust side of it, right, Devin? How differentiated is that network versus some of these other payout networks? I'm sure investors have studied all of them, but it feels like it's a little bit of a sleeping giant in the sense that there's a lot of potential to expose that. You called it open up the network. I know we're skipping around. I apologize, but we're running out of time. I just want to make sure I hit it.
What is sort of your vision? I will lead into the stablecoin question, but we do not have to skip that. We can maybe save that for the next one. How do you see that piece of just the big payout network and as you have built it and where you can take it?
Yep. Remember I said our traditional moat was our cash retail payout network, right? It took years and years to build that, sign and manage all the agents around the world. That is only one component of what our new capability, which will be a fully enabled funds in, funds out, retail, digital, all payment types, including digital assets network. I think that is the big differentiator, which is most networks that people build because of who they are are one-sided. You focus on sending money someplace or you focus on accepting money someplace. Merchant acquirers focus on accepting money. Payout companies or networks focus on sending money, right? The only people who truly are two-sided are the networks like Visa and MasterCard, but they are really enablers for people like us or other people because they are the infrastructure providers.
They are few people like us who are mastering both the funds in and the funds out as proprietary platforms and networks. You get the entirety end to end. We are doing the hard work of then integrating that into modern payment platforms around the world. We are integrated into PIX. We own a bank in Europe. We just did a big platform upgrade. We are fully integrated in real-time into SEPA. I can move money around Europe in real-time cost-free, right? We think that is a differentiator. It is going to differentiate us for our business. It lowers costs, increases real-time, increases quality. We have now built it with a much more open architecture. Historically, the stuff we built was for us, by us, and only us. It had much more what I would call closed architectures, not exposable API layer.
The way we've built this is, and this is when we get to what we just launched in the Digital Asset Network, we can expose it to partners. We can have partners have a single point of integration into our network and use what part of it that makes sense for them. Right? We announced four partners that we'll have live in the first quarter of next year. That speaks to the speed at which we can bring a third party's payment volume now into our network. Those are mostly going to be funds out, although we've offered them funds in capabilities so that people can convert digital assets around the world into fiat currency either via account or via cash. That's the idea.
The idea is to have this at-scale funds in, funds out network, not in 10 countries, but in 100 countries. If you're someone who needs access to some or all part of that, we will enable it. Right? We probably won't enable competitor remittance companies like some of my other competitors have done. There are lots of use cases, as you know, B2C, C2C, B2B, B2C payment cases where people need to move money across borders that you can use our platform and rails for.
Yeah. Whether it's, like you said, a social network or a consumer network or marketplaces, you're in some of these difficult-to-reach countries. You're in KYC on the user side. I mean, I think there's a lot of potential there. I know investors wanted me to ask you this and then we can open it up to questions. Your vision then on the USDPT and then the Stable Card, I know you're working with Solana and whatnot, how do you see that evolving? I know I asked you on the stage the guardrail question around how you plan to manage that, how do you see that evolving short, mid, long term?
Yeah. There are really three very distinct opportunities there that we're pursuing. Right? The first is we are beholden to the SWIFT banking rails, the interconnected correspondent banking system. While our customers, and I think most people understand that, while our customers can send money in real time, the actual movement of the money is T + 2, T + 3. Some places it's T + 5. Right? Matt and I then have to maintain float in our, of course, we have to maintain pre-funding accounts and correspondent banks around the world to enable our customers to experience real time because the payments network does not actually make that happen. We are solving part of that problem by interconnecting to these real-time payment rails. Digital assets at scale, settling with our partners in real time 24 by 7, we never have to worry about holidays.
We never have to worry about weekends. We do not have to worry about the T + 2 or T + 3. As a platform for our own treasury operations, it could be a game changer, and it could free up meaningful amounts of capital that currently today is consumed by enabling our business model. The second, which is our digital asset network, which we were just talking about, which is opening up that last mile, which when you talk to a lot of these digital asset companies, that is the hardest thing to solve is the last mile access is if you are in Bolivia and you have USDC and you actually want to buy a Coca-Cola, you have to convert it into Boliviano. Right? How do they get at scale last mile connectivity to do that digital asset to fiat conversion for a customer? The off-ramp. Right?
By creating the Digital Asset Network, we're in essence opening up that capability, our local treasury operations, our ability to source currencies in these local markets, which we do as a normal part of our business anyway because we're doing payouts in these markets today, Bolivia. You think about all the harder places, right? We've seen a lot of market demand for that. People are like, "Wow, you could do this. You could do this with one API. You could do this across all these end markets." We're like, "Yeah, we can." That is the second opportunity. The third opportunity really is around USDPT, which is our own coin. That has two axes.
One is in the first opportunity, using it to do our own treasury operations and potentially treasury operations for others, turns what today is negative float business into a positive float business for us. The second is the consumer value proposition. Today, the way the system works is if I send you money, you have no choice in most markets unless they're a dual currency market, but there aren't very many of those, to accept the current exchange rate and the local currency. That's the way the banking system works. That's the way the countries work. With USDPT, we can give customers the option to hold U.S. dollars until they want to do the currency conversion, until they want the local currency.
It in essence becomes a digital savings account that they can hold onto in their Western Union app, and they can decide when do I want to convert to Mexican pesos. With the Stable Card, we're actually giving them a payment mechanism where if they do not even want to convert it to cash, they just want to go to the grocery store or they just want to go to McDonald's, they just swipe the card and the conversion happens for them. They keep the stable asset. They can have local purchasing power with the card. We think it changes the end consumer. You saw in the Investor Day, we talked more about our receivers and the 70 million people around the world that we have the privilege of serving. This is a value proposition for people who receive money from Western Union to maintain the value of that money in U.S. dollars until we give control to the receiver until they want to convert it into local currency.
Perfect. Two minutes left.
Two minutes left.
I hit like a third of my questions, but I got to give one chance to ask questions for folks. Anybody? Happy to take a question if that's okay, Devin. Anyone? If not, I can close it out. Maybe to add or to close on what you just said, the opportunity to bank the users, including the receive side, has always been something we've talked about with Western Union. Some neobanks have come public. There's probably going to be some more that come public. Why can't Western Union bank the users? You have to trust they're giving you the money on the inflow side that they've earned to send money back home. You're seeing it on the receive side. Why can't you extend that more into financial services? I know that's part of Beyond, but why isn't that the top priority for Western Union?
I will start by saying we are. We've launched our digital wallet or our digital bank in six or seven countries. That is the Beyond strategy to go and provide consumer services, bank-like products around the world. The process of doing that in many cases requires licensing. Remember, most of our receive countries, we did not have what I would call payment institution bank-like level licensing because we relied on local agents. Many of our agents in many of our markets are banks themselves. Electra is a bank or BanCoppel is a bank. We relied on them and their licensing in those markets. We are going around and either buying or applying for and getting licenses to put us in a position to do that in many markets.
The second is you actually in those markets have to go and acquire the customer through an onboarding and a KYC process according to the local market. We're going to go and do that as well. This stablecoin card idea circumvents a whole bunch of that. We can send you money and you can just hold the stablecoin in your app as a value to then choose how you use. You do not actually need to go through a KYC process. You do not have to open a bank account. You can just hold US dollar denominated assets via the stablecoin without having to go through the process of becoming a banked customer. When we issue you the card, now you have in essence a virtual bank account that you can fund via your remittances and you can use in the local market with a card.
You can pay out to cash in any one of Western Union's 400,000 retail locations. We think it really accelerates that strategy in a way that is much lower lift, much less capital intensive, much less regulatorily intensive. We are excited about it.
Yeah. No, it's fun. There's a lot going on. I wish we had more time to talk about it. Any closing statement you want to make here, Devin, before we let you go?
Thank you. Thank you for listening. Thank you for being a partner over time, providing great feedback. We look forward to continuing to tell the story. We think the results will start to show up.
Yeah. No, I think like I said, I thought the Investor Day was great. You guys put a lot of thought into that. It's going to be fun to track the performance. I'm sure the execution will be sharp. Like I said, it'll be fun to evaluate it. Thank you for the time, Devin. Always a pleasure.
Thank you.