Devin McGranahan
Chief Executive Officer at Western Union
Thank you, Brad. Good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2022 financial results and a broader business update.
Over six months into my tenure as CEO of Western Union, I am not only excited but I am privileged to lead this great 171 year old organization. Each and every day, I have now had enough time and experience in the seat to be able to fully scope the transformation required to reenergize broad based growth. This transformation will likely take the better part of the next 18 to 24 months to drive the important changes like our new point of sale system, or our new digital experiences across all of our channels, partners and markets. It requires us to move from a model focused on growing revenues through geographic expansion and price optimization independently across our retail and digital channels, to one that focuses on growing customer counts and customer relationship value on an integrated basis across our channels and our geographies by providing a market leading experience and a wider range of product and services. This means bringing together products, platforms and people across geographies and partners.
As I have previously indicated, I continue to believe that the company's brand recognition, global reach large digital business and our purpose driven culture focused on improving the lives of our customers through broader financial inclusion, our true sources of competitive advantage and form a strong foundation to build upon. As we move towards this new model, we will be managing the business using a regionally based operating model is accelerating the development of better end-to-end customer experiences across both retail and digital products, moving to a more granular corridor level marketing strategy and using our pricing capabilities to maximize customer growth and customer lifetime value. These changes are doable and in many cases are already underway. But it will take time to further enhance our platform experiences and product offerings and to drive all of this across our large and distributed business. The revenue growth we reported, while largely in line with expectations is not in line with where I believe this company should be over the longer term.
As you saw in our results, as well as in our revised outlook, we did a good job of managing expenses in the quarter and creating capacity quicker than we were able to reinvest in our future growth initiatives. We expect to be able to accelerate investment in the back half of the year as we look to launch new projects to put the company on a path towards a more sustainable growth profile.
For the second quarter, we continue to experience year-over-year declines in transactions across our business. In particular, the slowing of our digital business is disappointing, with revenue declining 3% on a constant currency basis, including a 6% negative impact from our decision to suspend operations in Russia and Belarus. The majority of the underperformance in our branded digital revenues in the quarter came from three of our large European markets where we are working hard to improve our competitive position there. Our reported revenues in the quarter were $1.1 billion which excluded contributions from Business Solutions, decreased 4% on a constant currency basis. This growth rate was negatively impacted by a three percentage points by three percentage points by the suspension of operations in Russia and Belarus in March and reflects the continuing softness in our retail business, as well as the Aforementioned slowing of our digital business.
Despite these challenges, our business continued to show its resilience by generating nearly $260 million of operating profits, excluding the impact from Business Solutions. Adjusted earnings per share was $0.51 in the quarter compared to $0.48 in the prior period. The increase in adjusted EPS was driven primarily by the lower share count, higher operating profits and partially offset by a higher effective tax rate.
As I noted previously our Digital Business has been slowing since the second quarter of 2021 and in the near term we are working to improve our customer acquisition funnel, the on-boarding experience and several other features that should impact retention by delivering a better customer experience at certain key touch points. Ultimately, we are focused on building a new, globally scalable customer acquisition model that can cost effectively drive net new customers to our digital platform which in turn, will drive growth in revenues. I am very pleased to announce the addition of Bob Rupczynski to the team as our new Chief Marketing Officer. Bob joins us from PayPal, where he was the Global Head of consumer in network marketing. Prior to PayPal, Bob worked for both McDonald's and Kraft Heinz. Bob brings a unique background with strong experience leading marketing teams with both large retail operations and digital platforms on a global basis.
Over the past two quarters, we reallocated some of our digital marketing budget and resources from lower return regions in campaigns to North America, where we continue to believe we can successfully invest in cost effective new customer acquisition. In the quarter we also successfully re launched new customer acquisition campaigns in important North American corridors, including first transaction free for new digital customers from the U.S. to Mexico and a new customer segment pricing approach from U.S. to Jamaica. While these kinds of marketing programs suppress near term revenue, their investments and our ability to drive future growth.
Longer term, acquisition, retention and customer experience improvements will be driven by the introduction of our next generation digital platforms. As we announced last quarter, we're in the process of rolling out an updated version of The Western Union Digital app with an improved user experience. We launched this update in Canada in Q1. We have also recently begun to introduce this new experience in Australia. And we plan to continue rolling it out across several of our major European markets, including France and the United Kingdom in the coming months.
One of the biggest benefits of the new platform will be the consolidation of our 50 plus countries specific applications into four to six regional platforms which will reduce operational complexity and allow for much faster deployment of product enhancements. Our wallet based digital banking platform which we launched in Germany, Romania, in February of this year, continues to gain traction. We look forward to sharing the details on the 20,000 Plus customers we now have on the platform at our investor day in October. The progress we have seen today further strengthens our belief that a wallet based experience in our major markets will improve the long term potential of our business.
To that end in Q3, we intend to integrate our current branded digital experience with this separate wallet based digital banking offer in both Germany and Romania, allowing for multiple journeys, seamlessly integrated into one easy to use app. We believe this approach with a single integrated experience will be the model for future rollouts across the globe.
In retail, unfortunately, we continue to see year-over-year declines in transactions. Our retail business continues to be affected by macroeconomic headwinds, including inflation and slowing economic growth in many parts of the world. In particular, on-going softness in Europe in certain parts of Asia have negatively impacted our results. To achieve sustainable growth for the company overall we must stabilize our retail business. Our historic retail model was one driven by growth in agent locations and price optimization at the corridor or even the street corner level. Building on this market leading network and strong pricing toolkit, we now need to prioritize delivering best-in-class customer and agent experience, location level marketing and promotions and corridor by corridor messaging and community building.
Additionally, we aspire for our retail network to be an on-going, on ramp to cost effectively deliver new customers into our digital ecosystem. As I have previously discussed, we continue development on our next generation point of sale system and plan to unveil our new platform for testing in the market late this year.
Our retail experience work today has focused on improving agent experience and enhancing transaction completion rates. We are now beginning to see small improvements and in June, we saw a one point uptick in conversion at our retail point of sale, or nearly 32,000 incremental transactions from our improvement efforts. Our goal for our next generation POS is to bring enhanced capabilities, including digital receipts, customer recognition across channels, ID scanning, optical character recognition and a broad suite of pricing capabilities to our agents, beginning the rollout in the first half of 2023.
Since our discussion on the last call, we have now entered the final phase of our strategy work. We envision being the branded market leader in delivering payments and accessible financial service products to migrants in their communities, helping our customers achieve better financial outcomes. We believe that across our existing markets, this broader definition of our target customer and an expanded portfolio of products and services will allow us to significantly grow our total addressable market and create fundamentally new opportunities to drive profitable growth. Our sizeable existing customer base, our trusted brand, our strong compliance capabilities across a diverse set of markets and our broad reach across both digital and retail positions us for success. I look forward to sharing in greater detail in our investor Day which we will host in New York City in October.
Previously, I have discussed elements of our updated strategy, including strengthening our core retail and digital customer experiences, improving the performance of our retail distribution network and creating a one of a kind retail to digital escalator, leveraging our unique scale across markets and channels. An equally important element of our updated strategy is to focus greater attention on our receiver base. In 2021, Western Union interacted with approximately 80 million receivers around the world. As I have seen in my recent travels, Latin America is a great example of the potential of our receiver base and an important growth market for Western Union. LACA generates around $400 million in revenue annually for us, with very little of that coming from the receivers embedded in the Latin American market.
According to the latest World Bank Migration and Development brief released in May, Latin America and the Caribbean will see $140 billion of inbound principal in 2022, up roughly 40% over the last two years. Western Union has a unique opportunity to begin to capture more of those payment flows through the development of card based and digital receive products. We believe that activating this receiver base is a large, untapped opportunity that we can capture while also continuing to grow our core business in the region.
Mexico is a great example of the growth opportunity for us, as it is home to over 125 million people where we have strong brand recognition, a growing population of digital savvy customers and where today, only approximately 10% of our total revenue in Mexico is generated from within the country. By offering our receivers, as well as a broader cohort of consumers who may be underserved in this marketplace, products like a multicurrency digital wallet, either a virtual or a physical debit card and an integrated money transfer service, we have the opportunity to engage with millions of new potential customers in multiple ways.
Over the last few calls, I've talked extensively about improving our retail experience and using our network to activate the retail to digital escalator and in my travels through Brazil I witnessed first-hand the power of controlled distribution for delivering on both of these ideas. In Brazil, of the roughly 1200 total locations we have approximately 70 of them are Western Union exclusive experience centers. These stores while only roughly 5% of our locations count in the country represent over 50% of the country's retail revenue. We believe there is power in having the right stores in the right locations on a branded basis, where we can control the customer experience. We are now in the process of assessing the potential of more Western Union experience centers in other areas of our network with high population densities as a strategic asset to help drive customer awareness of our retail, digital and omni-channel offerings.
Across both our retail and digital channels, we see increased opportunity to capitalize on market demand for payout to account. As you know, our payout to account network operates in over 100 countries with over 5 billion enabled accounts. We see this as a strategic asset and a driver of future growth. Recently, we added two additional markets to our account payout network and can now deliver real time direct-to-account in both Bolivia and the Dominican Republic. Our payout to account business in the quarter was roughly at a $300 million annual run rate and revenue with over 70% of the principal being delivered to an account in real time.
Before I turn it over to Raj to discuss our financial results and revised outlook in more detail. I would like to highlight that we continue to expand our presence in the Middle East, an important market for Western Union with the addition of two key partnerships.
First in the UAE, we are in the process of integrating our digital services with e& money. e& formally Etisalat group is a global technology and investment conglomerate driven by the vision of digitally empowering societies. We are excited to partner with e& money by enabling a cashless experience that can make a difference. We will launch the service in the near future. Additionally, we have partnered with Banque Saudi Fransi, one of the leading banks in Saudi Arabia to provide our digital money transfer services to their customers as well.
Finally, please join me in welcoming Ben Adams to our team. Ben joined us in Q2 as our new Chief Legal Officer and Corporate Secretary coming to us from PayPal, where he spent the last seven years. Ben brings great experience leading legal teams supporting the development and delivery of market leading technology platforms on a global basis.
Thank you for your time. And I would now like to turn it over to Raj.
