Thanks everybody. Sorry we're a touch late. This is Tien-Tsin Huang. I follow the payments and IT services sector at JP Morgan, and excited to have Western Union with us. Devin McGranahan, the CEO, is nice enough to join, coming across the country to join us here in Boston. Thank you, Devin, for joining.
Yeah, it's my pleasure. Thanks for having us.
Always great to see you.
Great company. Yeah, you guys do a great job.
No, thank you for that. It's because you're here. We get to learn, and I know you've been hard at work and we were just talking about it before. I feel like with Devin and the interactions I've had with him and the team, it definitely feels like the culture has changed and your imprint is definitely there. Well done on that, Devin. I gathered a lot of questions from investors to get through. I'm hoping it's not too detailed.
Oh, no.
Um-
Let's bang through them.
Mostly big picture stuff.
The ones at the end are really good.
Okay. We can just skip ahead to that. That's kind of where I was going with this. I needed to get a few just out the way.
Yeah.
Let's get the macro question out the way.
Yeah.
Devin. Getting questions, I know your user base is very resilient. It's always been the case through cycles, but with higher energy prices and the conflict and everything else going on, are you seeing any impact to your business?
Yeah. There's a lot going on in the world, right?
Yes.
We're a very global business, which through what has transpired here in the Americas, has been valuable to us. We've been able to benefit from the European and Middle Eastern business during the time here in the Americas. Since the elections in the fall of 2024, the Americas business has been under significant pressure, both here in North America and in South America. What I would say is we actually are seeing some moderating, which is both the combination of the grow over of the historic declines that we saw. You can even see it in the Banco de México numbers, some moderating, and some promising signs on consumer behavior.
Good.
Customers are still transacting in the retail environment. Principales are remaining relatively stable, at a moderately elevated level. In some quarters, and we talked about this in the quarter, we've actually started to see a return to small amounts of growth. Which means, people are coming back, people are still sending money home, there's people who have jobs. We remain positive about the long term. Any study you look at anywhere in the world, none of these global economies, none of these major countries can continue to grow without importing talent, given where birthrates are. Even here in the U.S., we're below 2.1.
Long term, the trends are with us. In the short term, there's some political headwinds which seem to be stabilizing. We will see in the second quarter, but the first quarter showed some stabilization in important corridors like Mexico, like Guatemala, Nicaragua, Colombia.
Good. I know one more related to this, is just with the 1%, the cash remittance tax, and I know that's getting some air time. Any surprises on the reaction to that from your users, whether it be on the retail side or the digital front? I ask because investors are saying, "Hey, it's hard to really know with tax refunds." Again, conflict.
Yeah.
Do we know enough data to draw a conclusion on what the impact's been or what it will be?
Yeah. It was tough to say there was any incremental material negative effect, given trends in retail improved in the quarter. We do have evidence that. We had a big program, I don't know if you remember, in 2023 and 2024 to get debit acceptance across our entire point of sale.
Part of that was, is Matt had figured out that the economics of accepting debit was actually favorable to the economics of accepting cash because of cash collection costs and breakage.
Right.
Other things. To create efficiency, and it speeds up the transaction and support our agents, we rolled out debit readers in the debit network across. That's been a huge boon for us. What we saw in the first quarter is new-to-franchise retail customers was up double digits for us. 80% of those were debit customers.
Good.
People who were using debit cards probably to avoid the tax.
We got a disproportionate of it because we had widely available debit acceptance across the network fee-free. That was, I think, good for us.
Yeah.
It helped stabilize some of the retail numbers.
Investing in the point of sale and the acceptance of things is paying off for that, which is good to hear. Just one more on the competitive landscape then, and behaviorally what you're seeing. Félix has come up some, I think Wise recently with their relisting here in the U.S. is getting a little bit more attention. Remitly was here at the conference, just so you know, Devin.
Yep.
Any change in behavior, pricing that's worth calling out that we should be watching?
Right. We talked about this on the first quarter, I think we were a contributor to it, We've changed our view. As the market got increasingly difficult, new customer pricing, went to a spot we weren't comfortable with.
Right.
You can even see in Remitly's numbers, they saw a significant shift to higher PPT, and we can speculate which corridors, but probably India, which helped keep their growth numbers up. The lower transaction customers, they clearly saw a slowdown in just like everybody else. That dynamic in the industry last year contributed to an increasing in our transaction to revenue spread.
Right.
I think we're certainly going to take a different attack, and we'll see what the industry does.
Okay, good. Just since we're on it, Intermex, the acquisition, you're beefing up the retail footprint.
Yep.
Just remind everyone here on the thesis of owning Intermex. We can feel it a little bit from some of your answers so far.
Yep.
Why do you still feel great about that?
Yep. Remember, the thesis was threefold. One was we like the network and the operating model. We've drawn for investors our ideal retail distribution, which is a small amount of owned locations, a moderate amount of independent, and that's a mix of exclusive and non-exclusive, so we can be side by side with competitors. Then a big base of the strategics, the grocery stores, the post offices, which makes Western Union kind of omnipresent.
Sure.
In Europe, we have that triangle, and it works pretty well. In parts of Asia, we have that triangle. We didn't have that here. We didn't have much of an owned location, and we didn't have the second half of the independent. We had Vigo, but Vigo was relatively small relative to Ria's or Intermex's or MoneyGram's non-exclusive independent agent networks. The second thing is, in Europe, we perfected this idea of local go-to-market, managing customer experience and pricing at an individual agent. The U.S. model hadn't been there because we didn't have this much more competitive kind of independent non-exclusive. The first part of the thesis was their operating model was similar to our European model. It's a good management team, but we got owned locations. In the U.S., we'll now have 250, 300 owned locations, and we add 6,000 non-exclusive independents. T he triangle.
The distribution triangle in the U.S. will look much more like what we want it to look like after this deal. The second is there was a bunch of products and services, check acceptance, payroll card, certain payout networks, like in the Dominican Republic, that allowed us to enhance the value proposition. The third, they really are a six to eight corridor company, Guatemala, D.R., Mexico, and so we're going to take those agents and add the Western Union network. Send money to Philippines, send money to Pakistan, send money to Africa. We think in those independent agents, those aren't huge businesses, but we'll now compete with Ria and MoneyGram for those extra corridors in those Intermex locations where they couldn't do it before. Corridor expansion for them, new products for us, and a right distribution footprint here in the U.S.
Part of the footprint, organically, you've also added exclusive deals with a few agents on top, right?
Correct.
As we're waiting for Intermex to come in here, you're also sort of beefing up that piece as well.
Right.
Kroger, you talked about, it's always a name we've discussed, but you're going to exclusivity, some others you talked about, right?
Kroger, Vallarta, we won Canada Post, which was a competitive takeaway. There's one or two more that we'll be announcing here, hopefully before the end of the year.
Right. That will be needle-moving. You've given us some of the metrics.
We went live with Deutsche Post in Europe a couple of weeks ago. We're already seeing the benefits of that in Europe.
It sounds like you answered a little bit. Those things are all on time. The questions I've gotten recently have been, why are these good deals on the exclusive side? What's the cost to bring it in?
Yep.
What's your response to that?
They're good deals because they're exclusive. The unit economics tend to be more favorable than what I refer to as the knife fight in the independent non-exclusive. The value equation between costs, both commissions and support, is different than it is in the independent non-exclusive. Most importantly, they expand the network. Like in Canada, we will grow our non-U.S. send to Canada business by having Canada Post, because you get patterns in all these small towns around Canada with their almost 10,000 locations. We saw this, and one of the lessons I learned was when we lost the Deutsche Post, we never recovered in Germany with the send to Germany business because we lost all these small German towns where there's no other option.
These large networks add to our ability to have the value proposition around the world with sending to the U.S., sending to Canada, and it's convenience for customers at unit economics that we find very attractive.
Okay. With Intermex coming on, you've signed some of these exclusive deals, and I'm sure there's value that you're bringing, point of sale, the marketing, everything else. We don't need to talk about that. I guess I'm trying to get to, before we talk about the fun stuff.
The other thing, Tien-Tsin, right?
Yeah.
Just for people who model these things, right?
Please.
Deutsche Post is a little different because it used to be ours, it went away.
Yeah.
Coming back.
We know it.
The rest of them are competitive takeaways. If customers don't change behavior, and we know this from having lost agents along the way, 60% or 70% of the customers are actually the customer of the retailer. They're not the customer of the money transfer provider, right? They're not going to follow the brand that was there. They're going to keep going to that grocery store or that post office regardless of the brands that are there. Our product is as good, if not better, than the competitors we're taking it away from. We win new customers by winning these deals.
You get that traffic.
That we didn't have today.
Right. You get that traffic.
That's the biggest economic benefit, is it's incremental volume to us by signing that retailer.
Yep. No, I think getting that traffic is valuable, which is kind of where I was going a little bit, right? You're bringing those on. You've got a lot of these new initiatives, fun initiatives, which we'll talk about next.
Yeah.
You're going to absorb Intermex, there's a lot going on on the margin side. The quarter, I don't need you to repeat what happened with the quarter. From a margin perspective, that did surprise to the downside, at least relative to the expectations. Full year I think is fine. Walk us through the visibility you have on the margin front, given everything that's going on. I think there's an expectation for that to recover.
Yep.
You're approving or pulling forward some of your efficiency-
Yep.
You're balancing a lot, Devin.
Yep.
Give us a little bit of clarity around the visibility that you have on margins.
Yep.
Then we'll do the fun stuff.
I just want to give me two minutes.
Please.
To close out the first topic.
Important.
On the thesis, right?
Yeah.
As you and I have talked about over time, we made a decision when probably 2022, early 2023, to reinvest in our retail business, and that was to get market competitive on pricing.
Yep. We did that.
It was a significant upgrading and updating to the experience, both for the customers and the agents, to rebuild the distribution triangle so that we had all the elements. The idea behind that was not because we somehow think retail is going to be a double-digit grower. We are a, I'll make it up, but I'll be close, in most markets, kind of a teens market share player. In a market in which the overall market dynamics are flattish to slightly negative, the way you manage that business is if you're the largest player, is to continue to grow market share.
If we were at 40%, 50% market share, that's a hard proposition. When you're in the teens, being a market share donor in a declining market was not a winning strategy. These wins, and is a win market share, Intermex gain scale and market share so that we can propel the retail business with market share gains across the important corridors around the world, right? That's what we're doing. Once we get to, call it 30%, 40% market share, then we should worry about, gee, the market's now not going to recover, and what do we do? We got a lot of market share to go before that happens in most places around the world.
Yeah. Important clarity.
To your point around the margins, there's a couple important dynamics going on in our business. Set the first quarter aside. There were a bunch of one-time FX and other things in there. Our business is shifting, and it's shifting on two dimensions. It's shifting, and we've talked about this idea of fixed cost coverage. The normal pacing of our business and what the first quarter means, so we have a bunch of owned stores that do Travel Money. That's less prevalent, particularly in Europe, in the first quarter.
The fixed costs of that. Those businesses are profitable, and we like them, but the profit comes in Q2 and Q3, not in Q1.
Right.
Obviously that business felt more of the effects of the war in the Middle East because lots of people, particularly in the U.K., go to Dubai or go places on vacations that they just didn't do, right? That's one shift in our business. The second shift in our business, and you saw it in the quarter, is we are accelerating our digital and our pay out to account. I think we were north of 40% in pay out to account growth. It had been in the low 30s, so that was a real step up.
On a contribution margin ratio basis, that's attractive business.
Right.
On a contribution dollar per transaction business, that is lower.
Right.
When you look at our P&L and you see 55% of costs are transaction based, commissions and payout costs and things. 45% is reasonably fixed, right? Marketing people, and technology people, and product people. As we substitute declining higher contribution per transaction retail with faster growing but lower contribution per transaction, you got to manage that fixed cost base. You got to get the fixed cost base in. We just got to get the top-line transaction growth, so our transaction growth is kind of hovering around -1 right now, +1. What's happening is the mix is changing. You either got to lower costs or get the whole thing to grow a lot faster. We're working on both of those things.
What we talked about in the quarter was accelerating the $150 million program from five years to three.
Adopting AI in a probably more aggressive stance than we had taken, moving to a more regionalized operating model. 5,000, 6,000 of our employee base are in these big operating centers that we have in Costa Rica, Lithuania, Manila. That model in a very kind of centralized way worked for a long time for us, we got to move that, got to automate more of that, move it more to align with the regions, and take a lot of manual labor out of it. That's kind of what's on the agenda for the next 12-18 months. Intermex, by the way, helps us do that because that's going to help us move the North American operating model to this much more leaner and regionalized operating model here in the U.S. and in LATAM.
Okay. Got it. Yeah, some of it is seasonal, but the rest of it is you are taking action that's moving and.
Correct.
We'll see that and that'll lift that second half.
Yep.
Margin. Okay. let's talk about some of the funner stuff that I did want to hit you up on. A lot of this you'll be familiar with given similar questions we've asked Fiserv.
Yep.
Familiar with very well. This hit into value-added services, Devin, in your Beyond strategy. You want to double your Consumer Services revenue by 2028.
Yep.
Makes a lot of sense. We like a lot of the things going on there. Maybe I'll just ask you, instead of me listing them, what are the top two or three that you think will really be responsible for getting you to that double by 2028?
Yep.
Yeah.
There's ttwo threads. One, it's taking the products that we've now been perfecting, whether that be bill pay whether that be prepaid cards, whether that be Travel Money, Enhancing them across the distribution network, both digitally and retail. We showed a map in our investor day of where Consumer Services products are by region. What you'll see is we have a good bill pay business in the U.S. and in Argentina. We've got a Travel Money business in the U.K. and in Italy. We've got a prepaid business in Argentina and the U.S. You look at, as we've built these or done acquisitions, the first opportunity is what I would call geographic fill-in.
Okay.
Take the products and services, run them across the network, get them all in the digital channels, and that drives growth. We have products that work. We know how to do them now, and so it's the classic Western Union grow by just expanding things.
The second is building and delivering new products and services. Taking bill pay and moving it to cross-border bill pay, which is a product that we'll launch here in the, call it in the next 12 months. It's working more on the, we talked about this at the investor day, too, B2C, C2B products. Being able to do disbursements, being able to enable point of sale in our digital wallets through QR code-based payments. In that, new products is really what we're doing with stablecoins. Issuing Stable Cards, driving the payout network for digital wallet providers, and so enhancing the value proposition of our current assets to that digital asset customer base and economy that we have not to date been participating in that much. Really those two lanes, expand distribution of existing products, innovate, and put new products into the marketplace.
I do want to ask about.
Some M&A.
Yeah.
Where we continue to look for attractive products that we can do exactly that, which is buy a capability or a platform that we can put into our distribution and then play one happens, which is expanded across the Western Union +100 million customer base, the 400,000 retail locations, the 50 digital countries we're in digital. That's the play. Find something, push it into the system.
Yeah.
Which by the way, was the Fiserv play for many years, where we would go buy something and then sell it to 5,000 banks.
Yeah. Amplify the growth by exposing it through distribution.
Correct.
Thinking about that, I think you and I have talked about this. The level of trust that a consumer, a customer has with Western Union is high. They're putting their hard-earned money and handing it to you to give it back to their loved ones or whomever. Why not bank them is always a natural question, and everyone seems to be banking their users, embedded finance, embedded banking. Fiserv talked about that as a pillar for them. My question there is why can't Western Union be a big player in that, Devin, and why not even lend to your customers? Why not push the card a little bit harder? How easy would that be for you to do? Do you have to do it country by country? Wallet, I guess, is maybe one way to answer it. I know it's an open-ended question.
Yeah. That really is what we're doing, right? We'll be going live with our digital wallet in Australia, probably in the third quarter. We had to get a license. We had to get an e-money license. We did an acquisition in Mexico, again, we could get a license. We'll launch our wallet in Mexico.
Right.
We got regulatory approval of Lana.
Yep.
In February, something like that. We are doing that. That is the strategy to provide a broader set of products and services, many times digitally. It's the acquisition of Dash Singtel that we will have depository capabilities. Many times, that requires us to have a different license structure than we had in place. We're doing that even in the Middle East, where we're either doing acquisitions or we're in the application processes to get the licenses to enable us to provide a broader set of products and services. We'll come back to lending in a second, Devin.
Good.
The second thing is with our stablecoin strategy. We'll see where the legislation comes on clarity.
On clarity, yep.
That actually offers us the opportunity to provide products and services that have bank-like features without having to have the license. We're going to launch Stable Card in a whole bunch of countries, and I don't have to be an issuer or processor in those countries, which is what we've been doing with our wallets and our prepaid cards. On the country-by-country basis, which is why there's not a lot of big multi-country issuers out there, that's hard. Takes time, takes effort. We'll be able to do Stable Card at a much faster pace.
Sure.
Right? We'll be able to capture people who we're already sending money to say, "Instead of cash, would you like that in a Stable Card?" Which is, in essence, a mini bank account, right? It's a depository instrument in which you hold value that you can then use to purchase things, right?
You can spend on it.
It's kind of a bank account, debit card all wrapped in one, and it happens to be backed by a U.S. dollar-denominated asset, which in some countries has a lot of value given the inflationary or political environment. We are headed down that path. Lending, it's a thing unto itself. Right now we've got reasonable business offering other people's lending products. In Argentina, for example, we now make enough money on origination of loans to cover most of the fixed costs of the rent in our retail locations.
Good.
That's with a banking partner. We have a partnership here in the U.S. with Oportun. We have one in Europe with one of the big European banks. We don't have consumer risk lending capabilities, so in order for us to decide to use the balance sheet, that's both a decision for the board of directors on capital allocation and do we want to take consumer credit risk? More importantly, it will require an acquisition of some kind to get the expertise. I have seen many people who think they know how to lend money learn the hard way that they don't know how to lend money.
If you lend money in a good credit cycle, you think you're a genius until the credit cycle comes and then you find out, as Warren Buffett said, "Who's swimming without swim trunks on?" That's a business that we don't have a lot of expertise in, so we're going to be very cautious using the investors' money to go into unsecured subprime credit lending. That's a tough business to do well over time if you don't have some expertise.
It sounds like, just to summarize it then, Devin, I love the wallet opportunity. I think you guys are making the right moves. It sounds like the bottleneck is in getting the licenses. Is it not more that than the tech piece and the customer acquisition? You have the customers to sell-
Yep.
Into. Is the bottleneck really just the licenses?
The licenses are probably the biggest bottleneck. It took us 2+ years in Mexico to get an acquisition, get the deal done, get regulatory approval. We've been working on some things in the Middle East for 2+ years. Took us a year in Australia to get the license. Licensing is a big part of it. With our new Beyond platform, which we'll launch with the wallet in Australia, we think that has the ability to scale much faster than our traditional technology. We think we've solved the technology part. It really is a go-to-market and licensing situation.
Okay. We'll keep asking you then, right, on the licensing part.
Let's pay attention how Australia. Up is Mexico, Australia, Philippines. Those all have licenses now approved, and we'll be launching the technology between now and the end of the year. That's the real test to say how does this all go?
Okay. No, look, it's exciting. I think there's a lot of activity on wallets. I don't know if you've seen some of our survey work. The push towards wallet seems to be gaining share, right?
Correct.
Globally, it does feel like it's an important vehicle, right?
Yep.
To drive growth and engagement with customers on the financial services front. On digital asset network, let's talk about that, the next gen payments network. You gave a fun plan, I'll call it, on the digital asset network side. I think we're in the timeframe of when you said we'd learn a little bit more on the partners front and bringing USDPT to market. What's the progress report on that?
Yeah. We went live with USDPT. It is now available for institutions. It'll be available for consumers in early June.
June, okay.
We've started moving money. First country up was Bolivia. We've signed the agreement with our agent partner there, so we'll start settling in real time on the blockchain with USDPT in Bolivia, here before the end of the month. We'll be going live with Stable Card. The first four or five countries are all on tap for the third quarter. We are largely on, if not ahead of the timeline we laid out last August when I announced USDPT, the DAN network, and our Stable Card initiative. We remain optimistic and see both excitement in the marketplace in terms of use cases, partners, ways in which we can create new revenue streams for us with the use of stablecoin.
How would you describe the discussions that you've had with potential partners, users of the network? Since you've launched, how has that evolved? I'd love to hear. I'm sure you're having some interesting conversations, given where you sit with your global acceptance and the compliance engine and everything else you have.
Yeah.
You bring some legitimacy to it.
Yeah.
How have those conversations changed? What's the arc?
Yeah. I would put them into two groups. One, solving problems that exist. I was in the Philippines a month ago or so, and we were talking to one of the large crypto exchanges there in partnership with one of our large payout partners, who's a digital wallet. There's lots of friction in the process today for ensuring adequate funding over weekends, holidays, volume spikes, and this is a way to solve that problem for everybody, that doesn't require more capital on our partner's point, more capital on our part. When you go with people and you start solving real-world problems, people get very excited about it, right? It's not theoretical. It's not a use case that you're dreaming up.
We're going to make this work a lot better. It's going to take capital out of the system for us and our large partner there in the Philippines. Those conversations progress pretty rapidly. Other conversations, we go and talk to a bunch of digital asset wallet owners. I met with one that's Asian based. They have 70 million customers. The promise of allowing their 70 million customers to be able to cash out in Western Union locations, they get very excited about.
Sure.
Whether consumers are going to do that or not, or whether all of a sudden we'll see a lot of volume in our retail network, I can't tell you. All I know is we're going to give them an API. They're getting integrated, you'll be able to, in their 70 million customers, will be able to check out via Western Union. That's more the theory of the case, and we'll see. For us, being able to get the capital out of the system, being able to offer Stable Cards, we know that solves problems for either our agents or our customers. Even if there isn't massive retail consumer adoption, it's a good thing for us. It turns us from a negative flow business to either a neutral or maybe even a positive flow business, depending on where the CLARITY Act comes out.
We see promise in this just for Western Union, and then if there's market demand or consumer adoption that's even reasonable, that'll be upside for us relative to our own internal business case for why we want to do this.
Got it. I'm getting the yank.
You're getting the yank.
10 seconds or less, where would you rank this part of the discussion, digital asset network versus everything else we've talked about? The wallet push, Intermex. There's so much going on at Western Union. Where would this rank? We're done.
Yeah. For me, this is upside optionality.
Okay.
It really changes a bit of the narrative. It changes the nature of the business in a way that doesn't. We've proven we can do this. It's not like I got to spend massive amounts on technology. I don't have to create an entirely new business. This lives within the flows and the assets and the customers we have, but makes it a lot easier to do a lot of different things. Again, if all of a sudden we can offer those Stable Cards, which, to your point, are little mini bank accounts.
Yeah.
Customers really like that. That's not in any of the numbers. That's just now we earn spread on flow, we earn interchange on people spending the money, and Matt has a capital advantage on our balance sheet because he's not pre-funding all these cash payouts around the world that we're doing today. For me, this is exciting because it's a relatively significant change without having to spend years building technology or infrastructure. What we're now seeing is what's going to be the consumer adoption.
Yeah. It's leveraging what you have. No, I think it's a fun discussion around optionality for Western Union.
Yeah.
I'm glad you guys are pushing towards.