The Western Union Company (WU) Earnings Call Transcript & Summary

All right. So we're live. Excellent. We are having a nice conversation. But anyway, thanks for everyone for tuning in. This is Tien-Tsin Huang. I'm the payments analyst at JPMorgan. Really excited to have Western Union back with us. Devin McGranahan, CEO, is kind enough to join us for a fireside chat. And 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 and I love the perspective you have of time and distance on our company. So I enjoy these very much. Thanks for having us.

Of course, and 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 and in the old days. And I have framed somewhere, my Western Union initiation report. So I have to show it to you one day and get you to sign it. So before we get started into the strategy, I thought we built into what you talked about in Investor Day since that is very, very fresh. But before we do that, just -- we've been asking everyone this, just give us a state of the macro and the help 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'd highlight 2 things, right? One, the U.S. consumer, particularly our consumer, which is what I'll call mass market or down market, a consumer is under directs right? And 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. And so 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. And so 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? And so that means people are sending less frequently, but slightly more amounts like up 9% or something. But 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 in digital and the rapid digitization there. We see reasonable progress in Asia. And so the macro 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.

So for us, the biggest change in the regulatory environment is the pending remittance tax. And so we are, 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 and Walmart and Albertsons. And so we have to ensure that they understand what has to happen in their front ends to make sure that we comply with remittance tax. So -- 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. So I would say it's kind of as is status for us on the regulatory front.

So from a tech and compliance readiness you're there with the remittance tax.

Yes.

You did before we get in some of this up, you mentioned Kroger, so I'll ask. You just did renew Kroger an important name in the past as a -- 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, but what anything to learn or share from that renewal?

So we started the process with Kroger probably two years ago. And so we started the dialogue with them about how was retail evolving for them? And how could we partner with them in new and interesting ways as they change their retail experience. So the very traditional retail experience of Western Union behind a service desk where you sell cigarettes, lottery tickets, gift cards is evolving. It's evolving across the industry. And so -- we sat down with them and mapped out a road map about how would we do remittances in lane. How would we adopt more self-service or kiosk like they've done in the in the grocery side. We've talked to them about how would we do better linkages with the loyalty programs and how would we integrate The Western Union and the remittance experience into the overall shopping experience that they're trying to drive across their brands. And so 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. And so we partnered with that with our next-generation partner platform that we call partner OS. And when we got to the renewal, they were like, well, it certainly would make sense to continue on this journey and having multiple remittance companies makes that more complicated and you guys have showed how much you're willing to invest and innovate, we're going to kind of single source it with you guys?

Good.

And so we were very pleased by that decision on their part. And I think it reflects on the journey we've been on the last 3 years and the investments that we've made to really innovate in that retail environment with someone who's a strong a retailer as Kroger.

Right. So do you think that, that's a 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 what -- is that repeatable? That's another way to ask it.

So I think it's -- if I can reframe that just a little bit. So I think there's a narrative in the industry that customers have a preference for the nonexclusive independent agent channel. And certainly, there have been some smaller players -- including one we just purchased. That have had success in the independent nonexclusive channel. I actually think -- and this is part and parcel 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-let retail environment is durable. What happened is the experience degradated, particularly during COVID, where there was no staffing in the service desk, so you couldn't find someone to send money. And then as we talked about at the Investor Day, it was one of the places where we had significantly raised prices. So even if it was a valuable convenience you could walk outside down the street and get 30% less for the same product or service. So why was this channel then viable if you had service delivery problems and a value proposition that had a 30% premium on the pricing. So 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's a differentiator and a part of our retail reinvention.

So before we dig further into retail, you mentioned the pricing. And so 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 '22, I think, is when you started the 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. And so it sounds like you're mostly done at this point from a pricing perspective. Is that true? And is that going to change the narrative of Western Union and this infatuation investors have with pricing?

So it's a great question. And 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? Like there was no -- and I know we said it a lot, but 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 [ 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 weren't doing. And 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? And we watched quietly as many people took important market positions away from us because of our market positioning. And so 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. And there's -- and we talked in the Investor Day, there's 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's a big opportunity for us. And so 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.

So 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 remittance is then defined like 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. So how do you assess the landscape there, given that you are now more competitive on the pricing side?

So 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. And so any business that's competing to acquire customers every day, that is hard for anybody else to easily replicate. And 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. So the quality of the history of the brand around trust, around reliability and now around and 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 $1 billion digital business. In retail, it's us and then probably Ria, Euronet and then maybe MoneyGram and then everybody else gets much smaller. So 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 TerraPay of the world. Remitly, doesn't even own their own payout network. They rely on Ria, so they have an economic challenge and they have to pay Ria arrears, pay the agents. And so 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 we have a better payout cost or you can average your technology didn't trickle into anything. But when you're market competitive, those scale advantages can come through, both in terms of margin and in terms of our ability to compete.

Yes. At the Investor Day, I noted one thing that you said 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. So is that -- how important is that for what you need 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?

Yes. And so we are a tech company. We're a payments company. I think we lost sight of that. But we've got 4,000 or 5,000 people in tech, and so 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? And that gives us market access in places that other people can't easily get to, but also allows us to create those experiences and invest in that tech at a level that other people can't. And so at Investor Day, we showed our point-of-sale system and some of our digital wallet and our next-generation platforms. We've been working on those for two or three years, right? Those are the fruition of this at scale investing with purpose that we've been doing. And 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, more agents in Mexico or more agents in the Philippines. And when in 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 path to account network and to invest in the tech. And that's what will differentiate us over time.

So 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 on all of those things. So I know you've said some goals adding $500 million in incremental digital revenue by '28. 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 aftermarket and have an experience in fraud rates and auth rates similar to those that are digital native.

Yes. So we have the platform that is on par. It's just take a country like Chile, for example, right? Two years ago, we couldn't take a card payment in Chile. So the only digital experience you could have was an off-line bank-funded transaction. So you had to go to your bank, push the money to Western Union and then we would send it some place 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. And so we've been working -- so 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. So someone like Wise wouldn't take credit cards. And so we've 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. So here in the U.S., we are still on our platform that was here when I got here. So we're on the generation of platform from, call it, 2020, 2021 because we weren't willing to innovate and risk the $600 million digital business in the U.S. And so we've got 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 Wise. But thinking about the platform and the payouts and use that Chile example. So I thought the next-gen payment network discussion at the Investor Day was really good in the sense that everyone is talking about pay-ins and payouts and real-time payments, and you have so many nodes across the network and the trust side of it, right? Devin -- and so how differentiated is that network versus some of these other payout networks, and 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 and you called it open up the network. I know we're skipping around, I apologize, but running out of time, I just want to make sure I hit it. But what's sort of your vision? I'll leave into the stable coming question. But so we don't have to skip that. We can maybe save that for the next one. But how do you see that piece of just the big payout network as you built it and where you can take it? .

Yes. So remember, I said our traditional moat was our cash retail payout network right? And it took years and years to build that, signed and manage all the agents around the world. That's only one component of what our new capability, which will be as a fully enabled funds in, funds out, retail, digital, all payment types, including digital assets network. . And I think that is the big differentiator, which is most networks that people build because of who they are, are one-sided through. So you focus on sending money someplace or you focus on accepting money someplace. So merchant acquirers focus on accepting money, pay out companies or networks focus on sending money, right? And so the only people who truly are 2-sided are the networks like Visa and Mastercard, but they're really enablers for people like us or other people because they're the infrastructure providers. There's a few people like us who are mastering both the funds and the funds out as proprietary platforms and networks, so you get the entirety end to end. And we're doing the hard work of then integrating that into modern payment platforms around the world. So we're integrated into [ PIC ]. We own a bank in Europe. We just did a big platform upgrade. We're fully integrated in real time into SEPA. So I can move money around Europe in real time, cost free, right? And so we think that is a differentiator. It's going to differentiate us for our business. So it lowers cost, increases real time, increases quality. But we've now built it with a much more open architecture. So historically, the stuff we built was for us, by us and only us. And so it had much more, what I would call, closed architectures, not exposable API layer. And so 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. And 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? And so we announced 4 partners that will have live in the first quarter of next year. So that speaks to the speed at which we can bring a third party's payment volume now into our network. Now 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 currency, either via account or via cash and so 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. And then if you are 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. But there's lots of use cases as B2C, C2C, B2B, B2C payment cases where people need to move money across borders, that you can use our platform and rails for.

Yes, 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. But just -- I know investors wanted me to ask you this, and then we can open it up to questions. So your vision then on the US DPT and then the stable card, I know you're working with Solana and whatnot, but how do you see that evolving? And I know I asked you on the stage, the guardrail question around how you plan to manage that. But how do you see that evolving short, mid, long term?

Yes. So there's really three very distinct opportunities there that we're pursuing, right? The first is we are beholding to the Swift banking rails, the interconnected correspondent banking system. So while our customers, and I think most people understand it, while our customers can send money in real time, the actual movement of the money, T+2, T+3, some places, it's T+5, right? And so Matt and I then have to maintain float in our -- of course, we have to maintain pre-funding accounts and corresponding banks around the world to enable our customers to experience real time, because the payments network doesn't actually make that happen. And so we're solving part of that problem by interconnecting to these real-time payment rails. . But digital assets at scale, settling with our partners in real time, 24/7. We never have to worry about holidays. We never have to worry about weekends. We don't have to worry about the T+2 or T+3, so 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's the hardest thing to solve is the last mile access is if you're in Bolivia and you have USDC, and you actually want to buy a Coca-Cola, you got to convert it into bolivars, right? And so how do they get at scale. Last mile connectivity to do that digital asset to [ Fiat ] conversion for a customer. So the off-ramp, right? And so by creating the digital asset network where, 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 anyways, because we're doing payouts in these markets. Today Bolivia and you think about all the harder places, right? And 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, yes, we can. So that's the second opportunity. And then third opportunity really is around US DPT, which is our own coin. And 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. And then the second is that the consumer value proposition. So today, the way the system works is if I send you money, you have no choice in most markets unless there are no 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 US DPT, 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. So it in essence, becomes a digital savings account that they can hold on to in their Western Union app and they can decide when do I want to convert to Mexican pesos. And then with the stable card, we're actually giving them a payment mechanism where if they don't 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. So we think it changes the end consumer, and 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 for Western Union to maintain the value of that money in U.S. dollars until they 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 1/3 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 then. Anyone, no, I can close it out. So maybe to 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 talked about with Western Union and some neo banks have come public. There's probably going to be some more that come public. But why can't Western Union Bank for users? You have to trust they're giving you the money on the inflow side that they've earned to send money back home. It's going -- you're seeing it on the receive side, why can't you extend that more into financial services. I know it's part of Beyond -- but why isn't that the top priority for Western Union?

So I will start by saying we are, and we've launched our digital wall or our digital bank in 6 or 7 countries. And so 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 received countries, we didn't 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. So Elektro is a bank or a bank [indiscernible] is a bank. And so we relied on them and their licensing in those markets. So we're 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 in a KYC process according to the local market, and we're going to go and do that as well. But this stable coin card idea, circumvents a whole bunch of that. So we can send you money and you can just hold the stable coin in your app as a value to then choose how you use. You don't actually need to go through a KYC process. You don't have to open a bank account. You can just hold U.S. dollar-denominated assets via the stable coin without having to go through the process of becoming a bank customer. And then 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 or you can pay add to cash in any one of Western Union's 400,000 retail locations. So we think it really accelerates that strategy in a way that is much lower left, much less capital intensive, much less regulatorily intensive. And so we're excited about it.

Yes. No, it's fun. There's a lot going on. I wish we had more time to talk about. Any closing statement you want to make here, Devin, before we let you go?

Thank you for listening. Thank you for being a partner over time, providing great feedback. And -- we look forward to continuing to tell the story, and we think the results will start to show up?

Yes. No. I think like I said, I thought the Investor Day was great. You guys put a lot of thought into that, and it's going to be fun to track the performance. And I'm sure the execution will be sharp. And like I said, it would be fun to evaluate it. But thank you for the time, Devin. It was always a pleasure. .

Thank you.