Honestly, really happy to have you both here with us. As you know, I mean, Devin, you and I have known each other for many, many years, even before Western Union. Honestly, it's great to have you with us as well. Maybe you wanna just start off with a quick intro of yourself, your background.
Sure. Sure.
We'll go from there.
Devin McGranahan. I am the CEO of Western Union. I have had the privilege of leading this 172-year-old company for the last, 14 months, so I joined in the beginning of 2022. Over the course of 2022, we outlined a new strategy, which we call Evolve 2025, which we'll get a chance, hopefully, to talk a little bit about. Prior to that, I was at Fiserv First Data. I ran the merchant business, and prior to that, I ran the bill payment businesses. Prior to that, I spent 25 years at McKinsey & Company.
Okay.
It's great to be here. This is our CFO, Matt Cagwin. Hey, Darrin.
Pleasure to meet you in person finally.
Likewise.
My name's Matt Cagwin. I am the CFO of Western Union. I joined Devin about eight months ago, having spent the previous eight years at Fiserv First Data. I came from the First Data side. We were an arranged marriage. Some marriages work out. Some arranged marriages work out better. Prior to that, I spent about a decade in the Coke industry. The Coca-Cola Enterprises.
Cool. Very nice.
We can question judgment if he decided to come with me. Beyond that, he's a great CFO.
That's great to hear. Thanks, guys. Look, it's been, like you said, not too long. Devin, I mean, maybe just starting off with what, you know, you've seen in the past year or so, and what's been the big hurdles? What, you know, maybe the positives and negatives you've seen?
Yeah. Look, the last year has been a tough year, right? We had high inflation, we had global economic uncertainty. We exited Russia, Belarus, as many companies did, which was a disproportion of our business relative to some other companies. The dislocation in the geomacro environment in 2022 was probably not on the brochure when I accepted the job. It didn't say, "Hey, this is gonna be what's gonna happen." Under that, the business was relatively resilient. We continued to serve 120 million customers around the world in our retail and digital assets, and ultimately, it's the strength of the brand, right? I've talked about this multiple times. The underpinning of Evolve 2025 really is going back to grounding the company in the brand, in the customer, and in integrating our retail and our digital channels to create an omnichannel experience. We made a lot of progress on that.
In 2022, we made a lot of investments in our retail point of sale system, in our digital assets, and we launched a digital wallet in Europe, which is now live in four countries with over 150,000 people onboarded. The fundamental building blocks came together, and we're starting to see, you know, a little bit of the uplift in that as we disclosed at the end of the fourth quarter in terms of a change in trajectory in our digital business.
Before we go into too much on the, on the strategy and your focus, just a quick update on recent trends, I mean, if you don't mind, from the last quarter into the beginning of this year. You know, I mean, maybe you could remind us some of the data points, but obviously retail was still kind of finding its ground, right? Digital seems to be very strong, and you're actually adding quite a bit of new users. What is it, 30% plus growth on new users. There's been some promotions around that that's been helpful. Maybe just give us a sense of what you're seeing in the market.
Yeah. I'll go there. As you talked about, we launched a new go-to-market strategy in the middle of Q2. We actually piloted late in Q2, launched, I'm sorry, in the middle of Q3, I meant to say. As we exited the year, our North America business had about 30% outbound digital new customer acquisition. For the total company, we had around 14%, new digital customers. That has now carried on into this year.
Good.
We've actually seen low double-digit growth globally for new digital customer acquisition. We're starting to see a continued uplift in our transactions. You saw in Q4, we were first time going positive in multiple quarters. We were low single-digit, including Russia, or mid-single-digit without Russia. Now we're seeing a continued improvement to the point now we're in the mid-single-digits, with Russia still in the numbers.
Oh, wow.
As we've told the base in the calls.
It's a little bit of a lag.
... we expected customers come first.
Right.
Transactions will keep getting the uplift as you have a bigger concentration of new customers, and then revenue will continue to follow as we continue to start lapsing some of the cohorts coming in.
Darrin, I think it's, you know, for those who have tracked this story for some time, you know, Western Union was a significant beneficiary of the first part of COVID, right? Because of the recognition of the brand-
Yep
... the rapid migration of retail to digital. We saw significant increases in the, I'll call it the spring to summer of 2020 as the world shut down and people still needed to send remittances. As that progressed into 2021, what you saw in the numbers was an erosion of the value proposition as other digital players began to catch up. By mid-2021, our new customer acquisition rates had turned negative on a growth basis. From the middle of 2021 until we got to the 4Q of 2022, we were not growing fast enough to grow our customer base given what had transpired with COVID, right, and the influx that we had seen. If you'll recall, in the 2Q of 2022, we had negative transaction growth in the digital business for the first time in our history.
We feel pretty good about what we've been able to do with new offers, marketing funnel effectiveness, onboarding and returning customer journeys, as well as ongoing CRM marketing to be able to transition from that negative to positive by the 4Q, now, as Matt said, continuing into that mid-single digits with Russia, right? I think we see a strong trajectory there.
You talk about a lot of the dynamics being, you know, sort of post-COVID to some degree. There's also a narrative out there that competition is harder, right?
Yes.
You know, Devin, I mean, when you talk about what you're seeing in the marketplace around it, not even thinking about new technologies, but just the newer, the other digital money transfer companies that have either come public or not. You know, has anything changed from your perspective on that front, or is it more of the same, and you guys just have to do, you know, be effective at go to market?
Look, I have a high degree of respect for our competitors. You know, a couple of them had very strong fourth quarters, which shows the strength in their acquisition model, and more importantly, if you get under it, the strength in their retention. Right? They have significantly higher retention than we do, and that is a combination of customer experience, each of the journeys within returning customers and repeat customers, in particular, higher value repeat customers. They've innovated and managed their processes and their risk and compliance in a way that creates compelling experiences. The second is, you know, Wise, Remitly, and Western Union are all now about 2.8 million monthly active users. They have scale now, right? Where before we had a significant scale advantage.
Right.
You've got three players, roughly. They're different. Wise is much more account to account, higher principle, where we and Remitly are much more migrant, in many cases, account to cash.
Sure.
They're different market segments, but they now have equal scale, which makes them formidable as well.
You mentioned retention, and it's interesting because you've obviously shifted to a degree from prioritizing revenue per transaction to more lifetime value, and I think customer retention goes in with that, obviously. Just touch on that transition and strategic focus and how you operate.
Yeah. It's been a big transition for the company, which then translates into how do we go to market.
Yep.
How do we manage the customer, and then how do we, over time, realize value for the shareholders, right? The prior philosophy really was around managing each transaction independently, and in most cases, trying to maximize the revenue in that particular transaction. What we're doing is abstracting from the transaction and really thinking about customers, customer acquisition, and then customer lifetime management. Evolve 2025, at its core, is about expanding customer relationship, increasing retention and expanding customer relationship. In order to do that, you actually have to have customers who come back, right? Having a good value proposition, having compelling experiences relies less on bringing new customers to the franchise and churning them and maximizing each transaction that they do from a revenue and a profit standpoint to retaining customers and then expanding that relationship over time. That's really what we've shifted.
We've started to talk about CAC and LTV, which were not in the vernacular before, and we started to model within the company how do we build the technology, the processes and the platforms which are all really around the customer and not the transaction.
Thinking about that a little bit further, I mean, when you think of the go-to-market now, what's different about what you want as a acceptable customer today that maybe you wouldn't have taken a couple of years ago?
Well, I think it's less about we would have taken anybody. It's more who would take us. We before had a structure and a philosophy that said, "Sure, if you wanna pay $26 to send $300 to Jamaica, we're your guys.
Yeah.
Right? There's a segment of people who, for the brand and for the access and for our payout network, that made sense, and we captured those transactions. If you instead said, "We'd like to capture a lot of customers, and therefore we'll then have a price which says, 'Try us.'" We put in new customer segment offers, 50% off your first transaction, first transaction free. Now how do we turn those people into repeat customers? How do we get them to come back for a second transaction, a third transaction? How do we put a debit card or a prepaid card in their hand? How do we get them to pay a bill? That mindset, acquire a customer, build a customer relationship, versus let's maximize the value of each transaction to Jamaica.
Right. At the end of the day, you're seeing some success. The go-to-market strategy now with a 50% promotion or the free first transaction promotional pricing is obviously showing the uptick in new users coming in. It sounds like you're seeing retention improve based on the transaction growth rates.
Yeah, we talked about this at year-end, that our retention for the September cohort was the best we've seen in six years.
Wow.
We continue to monitor that and adjust our plans as we go.
Even after pricing's normalized.
After pricing started continuing to get to market-based pricing, yes.
You know, people index a lot on the first transaction offers, right? Remember, the new go-to-market program had other components to it. We refined the onboarding experience. We refined the repeat customer transaction journeys. We increased our ongoing CRM and communications to the customers, right? All of those elements of the program.
Yeah.
are what's driving ongoing retention, not, you know. Once you get the first transaction for 50% off, there's some other reason to come back. We've made it easier-
Yeah.
Because we've talked to you, because we've brought you back into the system, the second, third, and fourth transaction retention rates are higher for this cohort than previous cohorts because of the rest of the program, not because we offered the first transaction free.
A lot of what you're seeing is obviously the digital side.
Correct.
That's now, I think 43% of your transaction mix as of fourth quarter. Is that right?
It's lower than that. It's closer to 30. You're including white label in that number.
Including white label.
Yeah, yeah.
Digital and else.
Branded Digital, we're mainly talking about here.
Branded Digital, 30%.
Yeah.
Either way, that's gone up quite a bit.
Yeah.
I remember when it was under 10%.
Yeah.
Not too long. Couple years.
Of our revenue, it's about 25%.
Where does that go to? Where does the digital or Branded Digital specifically go to? As a percentage of the mix?
We talked about Investor Day. Our goal was to get the ecosystem and Branded Digital to be half our business over the future. We didn't time-bound that, 'cause we had a lot of plans and strategy we had to execute on to make that possible. That's our aspiration.
Okay. by default-
That, and by the way, that aspiration is not to shrink the digital business.
Yeah.
The retail business.
Everything.
To make the digital business half.
Well, that was where I was going.
Exactly. It's, it's to grow the digital business.
Yes.
You know.
I guess that's sort of the question, right? I mean, retail's still a very profitable piece of business for you guys. I f anything, you have 600,000 locations around the world that help support both, really.
Right.
Retail's a big part of that. When we think about where that is gonna go and when that's gonna inflect, it's been negative, right?
Per year.
Where do you see that inflecting?
We're seeing a couple of interesting things, right? We talked about this at the end of the fourth quarter. Our LACA business is growing double digits, right? That's predominantly retail business. It's predominantly a business where we have.
Just to be clear, Latin America.
Latin America. Everything south of the United States of America. That business has a strong distribution network. It is a combination of owned locations, Western Union branded exclusive locations, and a bit of independents. We have a robust product set there, where we have bill pay, we have foreign exchange, and we have some digital money movement services. That is a laboratory of what our retail business can look like everywhere in the world. We are in the process of right-sizing networks, aligning our right agent incentives.
Sure.
We've talked a lot about that point of sale experience to create stickiness with the customer to come back, ease of use. We believe, based on what we see in LACA and what we're now seeing in Europe, given some of the changes we've made, this is a business that can be stable to slightly growing, given the dynamics. If we can get to that, we can get to his 50%, because digital will keep accelerating.
From your perspective, I mean, I, again, I, you know, maybe I'm pushing too hard, but timing-wise, retail inflection, I mean, is that something we can hopefully see in the next couple of years or?
Just a reminder of our long-term guidance we put out in Investor Day. I mean.
Medium-term.
Medium-term. Thank you.
Thank you. We don't give long-term guidance.
We're expecting this year to be down 2%-4%. We reiterate that. Get into 0%-2% and then positive after that.
Yeah.
To get to that zero two, you're flattish on retail.
Okay. Thank you.
Flattish doesn't mean you're positive or zero, as Devin just talked about, 'cause you can get there if your digital's the double digits we talked about at Investor Day as our goal.
We've laid out a, you know, the Evolve 2025 is a three-year journey that brings the company to sustainable positive transaction and revenue growth, right? As you highlighted, Darrin, right. It's, it will be a much healthier re venue growth. These will be emphasizing customer relationship, customer relationship expansion, and retention, right? That's a model that you can compound, and this is what you see in our digital competitors, because they have much higher retention, have a more compounding effect for their new customer acquisitions than we do, right? We've got to get there both on the retail and the digital side.
Yep. One of the areas that you've also been investing is more owned locations, you know, the full, fully run. Maybe just touch on what that can do to the ecosystem for you guys and what kind of success you're having.
Yeah. We should level set just so everybody's on the same page. Owned locations today are 1.5% of the total. They're like 600.
Overactive.
650, something like that.
In other words, out of the 600,000 agents.
Out of it. Yeah, yeah.
You have 6, 700 owned.
Yeah. We don't anticipate that ever being more than 2% or 3% of the total, right? This is not a massive. We've gotten this question. This is not a massive shift in our model. Our model is a largely an agent-driven, largely a light-capital, light-touch model, where we can reach lots and lots of people very cost effectively with a, you know, a high variable cost component in the agent commissions.
Sure.
The benefit to the owned locations, though, is in high concentration geographies. In Brazil, 82 out of the 1,600 locations are 50% of the revenue of the country. In high concentration areas, we can control the experience, we can deliver additional products and services, most importantly, we can begin to integrate our digital and our retail in moving retail customers to digital seamlessly because there's no agent in the middle, right? Those locations give us the laboratory to say, "Okay, this catchment that we have, these 20-plus million new to retail customers every year, how do we begin to build relationships with them directly with Western Union?
I mean, This came up during your Investor Day, but you haven't seen much pushback from your regular agents, your non-owned agents?
No. In fact, I was with a very large strategic partner yesterday, we started down this same path. They're a big retailer in the United States. They're also dealing with retail to digital. They wanna integrate us into their loyalty program. We wanna integrate into their digital app. This is good for all of us. This is good for our partners. It's good for them. It's good for us. You just have to design the right economic models that says, how do we both benefit from a customer that's stickier, from a customer that does more with both of us? Every customer in the world, at some level, is going omnichannel. If we don't figure out how to integrate our models with our partners, we're gonna lose out.
Darrin, if I can just build on Devin's point.
[audio distortion]
The other thing that we can have with our agents that we can go down is our concept store concept. You have your company-owned, but you also, if you have to your point of if some agent were pushing back, there's economics where it makes sense for both parties, and you can do an exclusive location, which is a concept store, in a right location where they own it, and we've got dozens of them in Europe we're launching right now, where we partner with agents to do that.
Where it's more also a hybrid between...
Yeah. It's their agent location, but it's exclusive. It's well branded as Western Union. It feels like a company store.
Only branded Western Union.
Only branded Western Union. That's the alternative you have if you start getting to a pinch where certain agents are feeling like we're touching on their market.
How about the wallet? I mean, really the idea of the Western Union ecosystem and offering that digital wallet was something that I think we've thought made sense for years, frankly, just because you have the captive audience, especially on the, well, on both sides, but even on the receive side, it would make sense, let alone the send side. Thinking about what that can do for someone, can you touch on how that's been progressing and the consumer reception?
Yeah. you know we launched that second quarter of last year i n Germany and in Romania. We subsequently added Italy and Poland. What we're playing with that ecosystem is two-sided network, to your point, send and receive, right? We've rolled it out with a debit card. We've rolled it out with forex currency services, so you can hold 13 different currencies in your digital wallet. We've linked it to a series of other partners or ecosystem players that early wage access and a few other things, right? We've now onboarded about 150,000 is what we announced in the, in the fourth quarter earnings call. We are progressing kind of the pace in which people are transacting and the nature of the transactions they're doing quite well. We will bring that concept to the United States in the second half of this year.
Sure.
We will also launch in Brazil in the second half of this year. We will add one or two more European countries, again, trying to get the network effect on the two-sided send and receive. We're starting to create offers for senders to induce their receivers to download the wallet, you know.
That's great.
... to receive money into.
That's great.
Western Union digital wallet. You know, look, we launched it less than a year ago. We're pleased with the progress it's making. Strategically, it's really important over time because it's the underpinning for increased retention and relationship expansion. In the short term, we're focused on the digital business and the retail business, getting them back to, you know, reasonable rates of growth in our traditional cross-border money. Think about the wallet as the long-term destination. The short term is getting our digital business and our retail business functioning.
At the end of the day, I mean, going back, money would go into, you know, whether it's a digital, call it wallet, but then it would have to go right into either cash out or into a bank account, right? Now you're actually giving your users, both sides, you know, an opportunity to actually keep the funds in the wallet, right. You can monetize it in different ways.
Yes.
I mean, it's very logical, and I think it would be probably targeting a customer base that's relatively underbanked.
Correct. You know, I give this story. In Germany, we discovered, you know, there are multiple versions of your worker permit ID because it's a good, you know, European country, and so different levels of the ID entitle you to different social welfare benefits, right? Most traditional banks only accept the two highest levels, so think about a green card and a green card junior. There are three others for seasonal workers and for other things. Because of our risk and compliance system, we can accept all five.
Right.
Right? We onboard a bunch of people in those one, two, and three worker permit visas because we're able to do it, and we like those customers, where traditional banks don't like low balance, you know, higher transacting customers.
The investments that are needed in these initiatives, broadly speaking, are all captured in your plan, obviously.
Abso-absolutely.
When we think about the margin structure of this business now, going forward a little longer, Matt, what do you think? I mean, is this something that we can really have both, the best of both? You can invest properly in the digital wallet and grow, meet the growth targets you talked about at the Investor Day?
Yeah. We fully are committed to our medium-term guidance of the 19%-21%. We feel like with our $3 billion expense base, we have the ability to redeploy costs within that and be able to make these investments. I think we've talked to you before about how we de-redeployed last year $40 million-$50 million into these initiatives by moving it around some different programs and costs. We've continued that into this year. What we're trying to do with that is it's not really a cost-cutting initiative. It's really a redeployment, making sure we put money into the right things, and our focus ending across from real estate to right people in the right jobs, getting the commissions right, and getting our CAC in the right place.
We, you know, at our Investor Day in October, Matt laid out, in essence, our investment program, which is about $150 million, and we committed to reallocating within our current expense base to fund that $150 million.
Okay. That's helpful. Maybe just touch on capital allocation for a moment. I mean, you guys have been a very, you know, good cash generator for a long time. You've also bought back quite a bit of stock, and have a very high dividend yield. Maybe just give us a sense of what your thoughts are going forward.
Yeah, higher stock price will lower the dividend. Look, we remain committed to the philosophy that we laid out, which is, we believe we have the balance sheet and income strength to support our dividend at its current levels and remain committed to that as a ability to return capital to our shareholders. Second, we are looking to accelerate growth and if there are inorganic opportunities, particularly in building out the ecosystem or building our capabilities into adjacencies for cross-border money movement, we will deploy capital inorganically. Anything that's left after that, as you saw in the fourth quarter, where we returned almost $175 million, we will continue to buy back stock. We want to remain and be perceived very much as investor-friendly.
Okay. Guys, any questions? I'm gonna open it up to the audience. Let's see if there's any questions. I guess for me, while we're seeing if there's anything in the audience, I mean, when we think about what this business, Devin, you want it to look like in two to three years, you told me the mix already. Obviously the competitive landscape. I mean, does it make sense for consolidation to occur in this industry?
Generally, yes. Specifically, no. This is a highly globalized business, right? When you think about, you know, the Middle East is very different than what's happening in APAC, right? When you think about the Philippines, which is a super important inbound country, if you're in the remittance business. You know, 70 million of the 120 million people in the Philippines have a GCash wallet, right? That changes the nature of the business precipitously for, okay, if you had a big retail payout network, which we did in the Philippines, and all of a sudden everybody has gone digital, how does that influence the business and who are the players and how do those players aggregate up or down?
In any given market corridor geography, there are opportunities to consolidate, bring players with capabilities that are complementary together, particularly as the model evolves. Macro? Look, you know, there is no MoneyGram, Western Union, MoneyGram, Ria. Like, the regulators just aren't gonna let that happen.
Okay. I guess one. Go ahead. I think there's a question in the back.
Can you just quantify GDB and the revenue back to 1% of no retention channels?
We have. We've disclosed it before. It's $30 million for retail and about $10 million for digital.
Last question for you guys. I mean, look, your stock's been under some pressure the last few weeks. Honestly, all I get is calls asking why, and nobody really has a good explanation. It seems like competitive dynamics comes up sometimes. People worry about whether, you know, others are doing something that you guys aren't. From what the sound of it is, you guys are doing well, and the transaction growth trends are coming in in line or even better maybe than you would have expected when you gave your outlook. What do you think folks just don't get about the story that, you know, seems like it's being played out of the stock?
If I knew the answer, I would have had a lot less frustrating two weeks.
What do you think is underappreciated, you know?
What I think is underappreciated is the power of the existing customer base and of the integration of the franchise, right? You can go look at what my digital competitors spend for customer acquisition. It is not sustainable to build a $5 billion revenue business doing what they're doing. They've actually made public commitments about how they have to get to profitability.
Sure.
how they have to grow up.
Sure.
Right? The power of what we've built, over 50, 70 years, super hard to replicate. You can't get into 200 countries. You can't run the risk and compliance that we do. You can't process 350 million transactions at scale.
Right.
Right? That is a durable franchise that if we're successful, it's hard to replicate by anybody.
Makes sense. All right, guys, why don't we leave it there? Thank you very much for joining us today. Appreciate it.