All right. Good afternoon, everyone. Thank you for joining us here. We are in the afternoon session of the Tuesday session of our Arizona UBS Global, sorry, Global Technology and AI Conference. We're really fortunate to have with us today the CFO of Western Union, Matthew Cagwin. Matt is also joined here by Tom Hadley, who is head of corporate development and investor relations. So the first thing we want to do is make sure we say a special thanks to both Matt and Tom for traveling here to Arizona and being a part of our event now for many years in a row. So thank you.
Awesome. Thank you, Tim.
All right. Beautiful. We're going to start out with one of the key phrases from the recent Investor Day. We were glad to join you in New York not too long ago, but one of the key themes coming out of the Investor Day was the concept of beyond remittance. So you talked a little bit about leaning into some additional areas beyond the traditional core business, and I thought it would be a great place for us to start.
Tim, I appreciate the question. We just had our Investor Day. For those that haven't had a chance to spend a wonderful three, four hours listening to it, I'd strongly encourage you. Tim just told me it was a riveting afternoon for him. Our ultimate title beyond was we've been spending the last couple of years working on finishing the base, evolving beyond what we had. We're now to a point where we've got a very strong base of consumer service products. We actually grew last quarter by about 49%. We've doubled this business over the last three years almost. We have line of sight through both the white space we have on product expansion, territory expansion, to we believe we can double it again over the next three years. We're really excited about moving beyond remittances. It does not eliminate remittances.
That's still a core of our business. It's still $3.5 billion of our overall company. But we think that there's a strong growth prospect for us as we move beyond the core we have today.
All right. Great. A minor follow-up on that. So when we think about some of the beyond remittances categories, what are some that come to mind where you think, yeah, we're going to start seeing some real contributions in the next year or two? What are some a little bit longer term? Maybe just give us some context there.
Yep, certainly. Just a reminder for you and everybody else: if I go back three years, we used to call this another. We rebranded to Consumer Services about two years ago. When I joined the company, it was made up of largely two products. It was made up of Bill Pay in Argentina and the U.S. It was made up of Retail Money Order here in the U.S. Since then, we've expanded this product to include things like our wallet business, which includes both issuing revenue, float revenue, things of that nature in eight countries around the world. It includes our prepaid business, which we now have in two to three geographies around the world. It includes our Media Network business, which is using the white space of our website, apps, receipts, and screens within our agent locations.
And then most recently, we've now, in the last year and a half, expanded our Travel Money business, most recently with an acquisition that was closed in very early April, Q2, which has allowed us now to get to the point where we have about a $100 million Travel Money business on path for a $250 million Travel Money business by the end of our three-year trajectory.
All right. Thank you. All right, Matt, we're going to move on to another big topic, not necessarily at the Investor Day, but also at the Investor Day, a topic in general, which is the North America retail business and the stabilization of that. So you have noted more recently some macro-related pressures. You've talked about the large and important market, which is U.S. into Mexico. Maybe just talk a little bit about both the near term for that market and then how investors should be thinking about it recovering and the longer-term prospect.
Yep, certainly. I'm actually going to weave this question with your first one, Tom. So you've got a bigger audience today because I told people to come here. We talked about Q4 a little bit. So when you think about.
It was deleted. Yeah.
He deleted. I can't believe he did that to you. I read it and I got excited last night. When you think about our retail business and overall North America business, it's been under pressure the last couple of quarters. We've actually had it stabilize at the same decline now for two quarters in a row. That stabilization is expected to continue into Q4. So we're not seeing a deterioration further on North America business, which means as we get into the second quarter of next year, we start to lap, get easier comps, and start to stabilize as we've gotten into repeatable business there. When you look broader, this is where I'm going to pull your first question back in. When you think about broader, we've seen some strength in the fourth quarter in our APAC business, which we're really excited about.
We got a new leader we've had there for about six months, and he's making some good progress fixing the business. However, we have seen some macro challenges when you look at Europe and Latin America in particular. Those headwinds have caused us to be, we talked about in our last earnings call, being at the lower end of our revenue guidance. We think we'll be a little bit below that now. But due to strong cost management, we think we still can be at the upper end of our EPS guidance.
Okay. Well, I'm sure we all appreciate that update. Thank you, Matt. All right. Well, a somewhat related topic, staying on that U.S. into Mexico or U.S. into LATAM, let's talk a little bit about the Intermex acquisition. So clearly, North America retail, that's a part of the story with Intermex. Maybe we just start there.
Yep. So super excited about the asset. I've been monitoring Intermex since the time I started at Western Union. What Bob has built there is an amazing business from nearly nothing 14 years ago to now a $650 million business that had been growing at high single-digit, double-digit for many years. He actually doubled in the last five. An asset we had admired, but was beyond our willingness because we like retail. We're obviously in it, but wasn't willing to pay the multiple that he was trading at. And the current macro pressures have brought his stock down to a level where we could acquire it for about five times EBITDA before synergies, closer to four times after, and was an asset we couldn't pass up on. We've now spent about four or five months working through diligence, the regulatory stuff. Great news. HSR was painless.
The government actually didn't even make us pull it, which was amazing. We're now working our way through the state requirements. We've now filed in all states, got about a dozen of them that have already accepted the change of control. We've been working our way through the international ones. Still feel like we have line of sight to closing on the transaction middle of next year, and with the integration work we've done, we feel even more bullish about the transaction than we did the day we announced it.
All right. Great. Our team having covered Intermex, we're relatively familiar with it, so maybe just to add a couple of points there on Intermex, maybe you could talk a little bit about their agent locations and how strong some of those are and what that brings to Western Union, and then talk a little bit on the platform side and some of the things that they were doing quite well that might be able to be brought over to Western Union. In other words, some of the more operational synergies.
Yep, certainly. So we've got about 10,000 independent agents. They've got about 10,000 independent agents. The overlap is modest. So we do like the fact that we can get further white space in the U.S. When you think about Western Union, the way we like to go to market is we think about a pyramid. The bottom of our pyramid is the strategic channel. It's important to have your Krogers, your Walmarts, your business of that size, which provides you across a large base, but not as ethnically diverse. In the middle, you've got your, whether it be a Western Union exclusive or whether it be an independent non-exclusive. We're very light in the U.S. on that space. We had the 10,000, but some of our competitors had more. So this helps us fill out that space there.
And then when you get to the top of it, company-owned stores, after this acquisition, we'll have about 250 U.S. company-owned stores, which really helps us have the control in large, dense markets where you have high volume growth. So we're excited about that footprint. When you think about their technology, they've done an amazing job building out their agent onboarding. They're able to onboard their agents probably about a third of the time that we do. They've also got an amazing process for how they actually handle calls from their agents. They answer them within under 10 seconds, which provides that strong touch.
and it allows them to basically have lower commission rates than a business who doesn't because then agents want to trade a little bit for the overall package of how you handle your cash management, how you handle the customer relationship, how you handle the agent relationship. so we're learning a whole lot through the work and optimistic that we can bring that to our business.
Excellent. All right. Thank you for covering that. I think we hit North America retail and Intermex quite well. Why don't we move on to another topical item related to Western Union, which is debit acceptance. You've been talking about this a little bit on earnings calls lately. You talked about the experience in Europe. You're bringing it into the U.S.. Let's talk about what it means in terms of costs, transaction sizes, and how investors should think about it. And if you don't mind, a brief follow-up just in terms of sharing with us who you're working with and who you decided to partner with on the merchant acquiring side there.
You're really trying to get me to talk about one of your other clients. That wouldn't be very nice of them. Let's talk about broadly more so on Europe itself. So we've worked really hard, and this is what the Intermex deal is going to bring in for us. We've worked hard over the last three years on Europe on getting that pyramid right. When we started three years ago, we had no company-owned stores. We were largely focused on the strategic agents. We lost, as you probably remember, because you've been covering us for a very long time, we had lost two agents very early in my tenure. That caused us to go faster in transforming the business and moving more into the independent channel. We strengthened our sales force. We signed up many more new agents.
We got the protocols for how you actually get them to send transactions to us versus our competitors better. We worked on how you get to market-based pricing and you update that information on a daily, hourly basis. And all that has allowed the European business to do very strong over the last year. So we're really excited about that. Part of that was rolling out debit cards. Many of our competitors have used debit acceptance for their transactions for years. For whatever reason, Western Union had chosen not to do that. What we've seen in our European business is we've rolled that out. We've gotten to a meaningful penetration rate for the European business, more than double what it is here in North America. It's provided more sticky customers.
We've also seen the principal per transaction higher for someone who's a debit card transaction versus someone who's doing cash, which then provides us more revenue per transaction. Overall, very excited about rolling that out.
All right. Excellent. Well, you kind of touched on a little bit of the European success there. You touched on it. Maybe we could just expand a little bit more in some of the, what are some of the specific retail strategies that have worked really, really well that you're planning to bring into the U.S. market?
Yeah. So it's really, I'd pick on three things. One is, and it's already been rolled out, is our global point of sale solution. So when I joined the company, the company had started to move away from retail from an investment standpoint, not from a go-to-market standpoint. And we had a very old antiquated point of sale system. Our product and tech team have modernized that over the last three years to the point now we're fully on our new modern point of sale. This point of sale allows you to, I drive a Tesla. I don't know what you drive, but they push out new software updates regularly to me. I can decline it, but they push them out regularly and it just happens. Our old way was very manual, and it took forever.
You probably remember when I first started on a call maybe about a year and a half, two years ago, talking about how we were rolling out customer lookups, repeat transactions, and we had only rolled out 20%. Then we rolled out 50%, and you heard us talk about probably for two or three quarters before we had a fully rolled out to the marketplace. Now we're in a position with our new point of sale system, which is in the cloud, running on a thin client, that we can update technology very rapidly, and that's one of the things that we've done. That's a global thing that's benefited Europe. We're also, as we talked about a second ago, rolling out what type of payment method you can have, both from a funds in, funds out, but then underlying both those is the sales force.
And I actually just, so while you started early on in these meetings, I actually started this morning on a call on our commission structure and how we're going to pay our salespeople to motivate them to do better. And that started in Europe. And we're taking those learnings, and I'm not going to talk about publicly here because I don't want competitors using it, but what do you do to get them to wake up every morning to drive more transactions per location? And we've got the right people in place. We put training in place, and then we put compensation in place. That's been in Europe for now for about a year and a half as a result of the loss to big agents. We're taking that to North America. The call this morning I had was actually on the North America rollout of it.
Then the last point was that pricing I talked about a minute ago is getting the market-based pricing. We talked about it in our investor day. It's now somewhere 50%-70% rolled out in Europe. It was 70% rolled out in Europe. We're now working that on a handful of cities in the U.S., and we're continuing to roll that out because you can actually sometimes raise your price and still be competitive, and sometimes you've got to lower it. It gives you the ability to be dynamic throughout the day.
All right. Excellent. I think we covered North America or the U.S. and Europe, I think, quite well. Maybe we can just hit a couple of other quick updates if there are any or comments to make on either the Middle East or APAC. Both of those had strong transaction momentum. And then if there are any other dynamics to call out that investors should be mindful of, either regionally or any other trends we should be aware of.
Yeah. So I'll go with APAC first on that comment. So in our APAC market, as I mentioned before, we have a new leader. DigitalFirst came from a digital organization. And we're in the process right now of, we've launched a receiver app within the Philippines a little over a year ago. Now we're in the process of putting a digital platform in there for sending as well. The benefit here is you actually can send money straight to our own wallet, pull out of the process an agent and save on the commission business. We're also, we've been talking about it for a while, but we're working on rolling out additional wallets. Right now we're working on, in Australia, rolling out a wallet to that market. We've got our license recently, and we'll be out in the market in the first half of next year.
So a lot of hot things going on in APAC, and the core business is doing pretty solid this quarter. When you think about the Middle East, it's got one of the most largest migrations in the world. Saudi Arabia has been strong the last quarter. You're seeing some good business in the UAE. So it continues to be a place where you have a lot of ethnic diversity and a lot of movement, which is driving good business there.
All right. Excellent. Why don't we move on? You alluded to this a little bit, to the digital-first strategy. So when we think about branded digital, it's been demonstrating very strong growth momentum. You talked about eight quarters of consecutive mid-single-digit plus revenue growth and healthy low double-digit transaction growth. So maybe just talk a little bit about that growth in light of the competitive environment and actually just talk a little bit about that landscape.
Yeah. So Tim, as you probably remember, it's been a little over three years ago now. We had rolled out our new go-to-market strategy that was based in moving to market-based pricing. We rolled out a promotional pricing, started in the US, but then went worldwide early 2023. That has largely gotten us to a large portion of our business is market-based pricing. We've overhauled our marketing proposition. We've continued to strengthen the retail to digital escalator. We've now gotten to around 15% of our overall new customers are coming from the retail base, which helps us keep our cost of acquisition down. We talked about our investor day that we're targeting 20%, sub 20%, which provides a very solid LTV to CAC. As far as the market itself, it hasn't really changed much.
You've got little small corridor players that become very competitive at times, but when you look at the bigger, larger players, it's been relatively stable now for going on a year and a half to years.
Right. And when you say stable, that would include bidding for keywords and advertising dollars and all that types of customer acquisition costs effectively?
Yes.
No meaningful change.
No meaningful change.
All right. Great. All right. Let's stay on the digital topic just for a little bit. So there's a broader suite of services that can be characterized as digital, and maybe you could just expand a little bit more on Western Union's full-service digital platform.
Yep, so you probably heard us at our Investor Day. We've now expanded from our Branded Digital Business, which is cross-border remittances, to also include stablecoin strategy, and our stablecoin strategy is really four or five pillars to it. First off, we think there's a huge opportunity for us to pull out capital out of our business through leveraging digital currencies. As you know, we've got hundreds of millions of dollars trapped in our business every day to be able to enable real-time payments. We think that being able to move to a stablecoin would allow us to pull that money out and actually free it up to use for other purposes. Also, it'll help us move away from the correspondent bank system where you typically have money in process for a couple of days. We move on average about AUD 500 million every day.
So you can imagine what that would mean if we're able to move that and move that more real-time and not have that money tied up in the process and what I could earn on that. Then you move into what we call the DAN network, the Digital Asset Network. So we've now got partnerships with four different providers to be able to be an on-ramp, off-ramp with them. We expect to go live with them in the marketplace in the first half of next year. We're excited about this because it allows us to get more foot traffic into our agents, whether that be a big box store or whether that be a bodega or whether it be a check casher. They're all looking for more foot traffic, whether that be through commissions or whether that just be through buying more groceries if you're in the grocery store.
For the customer, it will feel and look just like a Western Union remittance transaction today. You go into your Yellow Wallet, you send yourself a transaction, and then you'd actually get your MTC in. You walk in and the payout happens to you and effectively provides the off-ramp. Or you can do the inverse effect of loading it on the on-ramp side. Our third part of our strategy there is a Stable Card. So view this like an issuing card, but it would have a much stickier benefit in a country where there's high inflation. If you're, I've got a big workforce in Argentina. Can you imagine living in a country where last year your inflation was 250%-300%? We gave our employees four raises last year because if you didn't, they couldn't afford their bills.
So imagine a world where your family in the U.S. is sending you $500 home, but by the time you spend it in the next month, it's only worth $300. So we can see a good utility for our stable card there, which is an increment to our prepaid card we have today here in the U.S. And then the last real element of this is we are issuing our own coin. The reason why we did that is we think that we've got good distribution to the 200 countries around the world we're in. But as you know, remittances are a large part of GDP for many countries we do operate in, and we're usually one of the largest providers. So we think that we can make a market for our coin in those markets.
We wanted to be able to control the economics, control the compliance, and control the overall distribution. We think we can grow that beyond that.
All right. Excellent. Thank you, Matt. Let's move on to the next topic, which is account payout transactions. So they're growing fast, 30% plus. Maybe you could just talk about, I mean, sure, that's a nice benefit of having anything growing 30%, but there's more to it than that in terms of the customer lifetime value and what this means for the stickiness of the customer.
Yeah. So you're right. We've now been on two-plus years of 30% account payout. This is whether it's digital-initiated or retail-initiated. They've both been around 30% for going on a couple of years now. People are moving more and more to wanting the money in their account in the received countries. What we've seen is the stickiness of an account-to-account relationship is meaningfully higher on a retention basis because people have gone through the exercise of loading their account information on the send side, loading their account information on the receive side. And it just provides, as long as you're providing good service and you're providing a reasonable market-based rate, you're more likely to have a, you're more likely to prevent someone from being a price shopper than a transaction where you're walking in handing cash and there's no long-term relationship or connection.
All right. Excellent. Maybe if you don't mind, could you just, for the investors, could you talk a little bit about the unit economics of these and just talking about how the RPT might be a little bit lower, but the principles higher, and etc.?
You've answered most of it there. But our average principal per transaction is somewhere in the mid-300s. We typically see an account payout transaction somewhere a couple hundred dollars higher than that. To your point, the yields on this with a take rate is dramatically lower because you don't have all the same transaction or same cost to the transaction. The competition is different. But the overall revenue per transactions get much more similar, and then your costs are similar. So our overall profit margin goes up, profit dollars a hair less, but you have longer retention.
All right. And lastly on this topic, the 300-plus direct connections that you talked about to real-time, basically, payout with local rail connections, etc., just talk about what that means in terms of a moat. How hard is that for others to attempt to replicate? How long does that take? What does that take in terms of banking relationships, licenses, etc.?
Hard. But it's been a journey. So if you were to go pool us, many of our competitors, there's aggregators that can give you access to a fair bit of that. But what you don't get through the aggregators is necessarily all the notices and connections you would want if you're wanting to tell your customers, "Hey, your money is here in the process," or, "Here, it's being delivered." So we set out a journey about two and a half years ago to go and take control of our payout network. What we've done is basically we have the benefit of having a couple of banking licenses. We have a banking license in Brazil. We've got one in Austria that covers all of Europe. And then we've got licenses in lots of other places.
That's allowed us to plug into things like PIX, allowed us to plug into things like UPI, SEPA, and so forth. Having the compliance infrastructure and then actually doing the technology work to plug into all that stuff is long and hard. Can you buy it, rent it, get parts of it? Yes. But I do think it's a massive moat for us to give us a benefit that we can go leverage for both C2C transactions or potentially someday business transactions.
Excellent. All right. This next topic, you kind of hit on this or hinted at it earlier in your talk, but maybe you could just talk a little bit about Consumer Services. And really, not so much the growth today, but you've talked about sustained double-digit growth and getting that business to roughly a $1 billion type of business by 2028.
Yep, certainly. So I did touch on a lot of that earlier, but it's, we talked about all the elements that were in it earlier. We've now had three years we've completed of double-digit growth. This year will be the fourth year of that. So we have a long track history of being able to sustainably grow this double-digit. The reason why I feel that's possible is because of the white space. When you've got a product where you're already everywhere, you're fighting for the next inch of market share. Here, we can go and pivot to different points of what new products do we put in place, how do we expand the products we have today, what additional relationships you can get to drive products for our customers.
And then the biggest asset we have is 100 million customers that we have that are eyeballs and wallets that are willing to buy services if we can provide them to them. So you've got everything from we've got lending partnerships to our media network to helping them pay their bills to travelers wanting to get foreign currency, whether it be inbound or outbound. So it's a super exciting space for me, as I talked about earlier.
All right. Excellent. In the few minutes that we have left, I think a great place to maybe wrap things up would be to talk a little bit about the three-year financial targets that you just gave at the Investor Day. You did give a medium-term financial outlook covering revenue, segment growth expectations, earnings, free cash flow, and a cost savings initiative. Maybe you could touch on some of the key aspects of the medium-term guide and included in that, maybe just include what portions or what assumption was made around Intermex.
Yep, certainly. So what we put out was overall revenue would grow 20% plus over the next three years. That was driven by the Intermex acquisition, which for everybody that's not counting, that's roughly a $1 billion growth. Of that, $500-$600 million comes from the Intermex acquisition. The next largest driver of it is growth in our branded digital business, followed by consumer services, both of them contributing about $500 million each, offset by continued pressure in our retail business. When you think about it from an EPS standpoint, what we talked about was growing our EPS to be $2.30, which is 30% growth over the last three years, driven by the revenue growth, the cost optimization, which I'll talk about in a minute, continued share buyback, and overall efficiencies.
And then, the driver there on cost efficiency, we had done a program when we had our investor day three years ago where we had set out to save $150 million over five years. We actually accomplished that in Q2 of this year, two and a half years early. We set out a new goal at this investor day to save another $150 million. This one I had highlighted in my prepared remarks at investor day was more of it will be falling to the bottom line this time than last time we were building new products and we needed the capital to go do it. This time we still see meaningful opportunity to further accelerate this through, whether it be through AI technologies, whether it just be through end-to-end process improvements. We still see tremendous opportunity and a fair bit of that will fall to the bottom line.
All right. That's great context. Adam, as a minor follow-up, maybe you could just talk a little bit about across cash, the retail business, digital, and then services. You could give us any kind of sense around fixed versus variable costs across these components of the business.
When you think about our retail and our digital business, the vast majority of it is variable. So remittances, you've got your funds-in costs, whether that be banking fees or interchange, funds-out costs being commission expense or banking fees. So very, very large variable base moves with revenue. On the consumer services side, it's a little more mixed. There is some fixed infrastructure on our Travel Money business. There's a little bit of fixed infrastructure on our Media Network, but there's also large heavy variable costs when you think about Retail Money Order or some of the Bill Pay.
All right. Excellent. Well, it's about the time that we have today. So I want to just say again, thank you to both Matt and to Tom for joining us here in Arizona, and thanks again for being for many years now a big part of our conference.
Awesome. Thank you, Tim.