Devin McGranahan
Chief Executive Officer at Western Union
Good afternoon, and welcome to Western Union's Third Quarter 2023 Financial Results Conference Call. It was just a little over a year ago today, that we presented our Evolve 2025 strategy to the investment community in New York City. We laid out a three-year journey that focuses the company on successfully delivering everyday branded financial services to the aspiring populations of the world. We articulated a strategy that focused on driving the business through customer level economics, including improved LTV to CAC and emphasis on improving retention and an expansion of our TAM by launching new transaction-based financial services products.
We painted a financial picture that would fund the required investments for this strategy within our strong operating margin range of 19% to 21% and with the goal of returning Western Union to sustainable and profitable revenue growth by 2025. Shortly thereafter, we reported Q3 2022 C2C transaction growth of negative 12% and adjusted revenue growth of negative 6%. And just one year later, today, we reported Q3 2023 transaction growth of 5% and adjusted revenue growth of 7%. Even absent the benefits of the Iraq Central Bank's policy changes, we have achieved global C2C transaction growth now of 4% and 800 basis point reversal in the trajectory of the underlying business.
Potentially most important and initially viewed with some skepticism, we committed to returning our retail business to stability. I am thus pleased to announce that we have now, excluding Iraq, returned our global retail transactions to flat on a year-over-year basis in the third quarter.
Switching to digital. When we launched our new go-to-market program, I highlighted that we would first grow new customers, then we would grow transactions and finally, we would start to grow revenue.
In the quarter, we achieved positive revenue growth of 3% for our global branded digital business, a full quarter ahead of our previous target. We have also begun to narrow the delta between transaction growth, which has been sustained at 12% and revenue growth.
While it is still too early in our journey to declare success, as I reflect on the last year and the progress we have made against our Evolve 2025 goals, I am particularly pleased with the following: the strength of the management team that we have been able to assemble which I believe is a great mix of the old and the new. The broad-based engagement of our employees around our purpose-driven strategy and the recognition of our need to drive for everyday execution in everything we do. The impact of our revised go-to-market strategy that is driving accelerated new customer acquisition at much more favorable tax.
A streamlined operating model that we believe is delivering both increased customer and agent satisfaction while achieving efficiencies that power our nearly $50 million in run rate savings. A fundamental shift in our product and technology roadmap from delivering back-office modernization to building customer and agent-facing product and experience innovation.
Finally, I'd like to recognize the strong support of our Board of Directors over the past 18 months as we've executed our strategy. We believe the success of these programmatic building blocks will help us to continue to power our journey to achieve our Evolve 2025 goals.
Shifting now to our Q3 results. Our total revenue for the third quarter reached $1.1 billion, reflecting a 7% increase on a constant currency basis, when excluding the contribution from Business Solutions, compared to the same period last year. This growth was driven by several factors, including the increase in revenue from Iraq, the benefit of Argentinian inflation and the improving fundamentals in our core business.
Adjusted earnings per share came in the quarter strong at $0.43 and included our continued investments in our Evolve 2025 strategy. Matt will further discuss our financial results in more detail and provide an update on our 2023 financial outlook.
Shifting to the macro, despite significant and potentially rising uncertainty and disruption in the world, we remain pleased with the resilience we continue to see in the Western Union customer base. While much has been written recently on the receding power of consumer spending in the U.S. and Europe, we continue to see a strong employment environment in our major markets, which we believe is translating into a continued willingness for our customers to send money home.
Our transaction growth trends are very positive, as I previously highlighted, and our average PPT, excluding the higher PPT from Iraq, has remained relatively stable year-over-year at down only 1%. Despite this increasingly uncertain macro backdrop, we continue to see enough opportunities within our own customer base to support our belief in the ability to drive our Evolve 2025 strategic outcomes.
At our Investor Day in 2022, we highlighted the fact that we found ourselves in the unenviable position of having a digital business that was shrinking on a transaction basis. This circumstance was the result of a strategy designed to maximize in-period revenue per transaction, to rectify the situation and drive long-term transaction and revenue growth, we unveiled a new go-to-market strategy, which was designed to maximize customer LTV to CAC. Our new go-to-market strategy is a holistic program focused on accelerating our new customer acquisition by targeting the right audiences, launching promotional pricing offers, improving funnel conversion and ensuring a high-quality conversion ratio from first transaction to repeat usage.
As you have now seen over the last year, our new customer acquisition is up meaningfully. We have returned our branded digital business to double-digit transaction growth rates and most importantly, we have achieved revenue growth for the first time in over a year with global branded digital revenue growing over 3% in the third quarter.
We've accomplished all of this on a CAC that has declined by over 20% year-to-date, largely led by efficiencies in our marketing program. Not only is our strategy driving more customers, transactions and now revenue but it is doing so more cost effectively with retention rates generally in line or better than our historic norms.
As we have started to lap the impact of our promotional pricing launch last year, we continue to see strong growth in new customers and transactions. This ongoing performance is being driven by a relentless focus on improving execution and experience at a country and even a corridor level. One example of this more granular focus has been our recent efforts to ensure our offers and our messaging resonate in high payout to account corridors. And as a result, our digitally initiated payout to account transactions grew 27% in the third quarter.
Moving now to our retail business, which is powered by our extensive agent network of over 400,000 active locations providing accessible financial services to those customers who prefer in-person transactions.
When we began our Evolve 2025 journey due to the sheer size and scale of our retail business, we knew that improvements in this business would be both more gradual and potentially lumpy. With the exit of Russia and Belarus, the looming loss of 2 large and important agents in Europe, and the ongoing operational and executional challenges in the third quarter of 2022, we shrank transactions in the global retail business by 8%.
Beginning with the launch of our Evolve 2025 strategy, we began investing in our retail point-of-sale system and platform in a more meaningful way than we had in many years with a focus on improving and simplifying agent and customer experiences. We launched a program to grow our footprint of controlled distribution through concept stores and owned locations and we realigned our sales and account teams to focus much more on agent and network productivity versus total agent count.
One year later, I am pleased to report that we have been able to achieve flat year-over-year retail transaction growth in Q3, excluding the benefits of Iraq, which continued the best sustained transaction growth improvement we've seen since 2018. Additionally, our largest region, North America, grew retail transactions 3%, excluding our U.S. domestic money transfer business and had its first quarter of positive transaction growth in over six years. As we drive more customers to our platform and continue to make enhancements to the customer and agent experience, we are also beginning to see improvements in our retail retention rates in large markets like the U.S.
However, given ongoing challenges in markets like Europe, our global year-to-date retention rate has been relatively flat to 2022. Additionally, I would like to highlight the progress we continue to make on our controlled distribution strategy, supporting our focus on network optimization. We began to roll this model out in Europe last year, primarily through concept stores where we partner with our agents to provide an exclusive Western Union branded experience. We are pleased to share that we opened our 100th concept store in Europe during the third quarter.
As of September, the average concept store opened more than six months was doing 8x the transactions of our broader retail footprint in Europe. While we do not expect these types of locations to be a large portion of our overall distribution. They highlight the power of our brand and help position us to better meet the expanding needs of our customer base.
Finally, we began testing a new retail go-to-market program earlier this year with an emphasis on reinvesting in retail marketing and aligning our value proposition to market levels in important corridors. We have been pleased with the results we have seen including an impressive turnaround in one of our more meaningful European markets. In this market, we expanded our controlled distribution. We increased our marketing presence and we implemented a much more dynamic pricing strategy that adjust pricing based on market insights multiple times a day.
Since its implementation, our transaction growth in this country has more than doubled. And after initial dip following its implementation, our revenue growth rate is now growing at an even higher level than it was before. Recent progress in our retail business validates our conviction that we can indeed stabilize this business on a global basis.
Now switching to our third pillar, ecosystem. The foundation of our accessible financial services strategy is to provide products and services that can meet the unique needs of our migrant customers, which will translate into a more account-based relationship and thus, ultimately higher retention.
Traditional financial services can often be intimidating to our customers and may require account minimums and/or impose deep fees. As a result, our research indicates that there is significant unmet need amongst our customers for fair, transparent and accessible transactional financial services and a need for broader access to credit.
To address these needs, we have relaunched our prepaid card in the U.S., developed and launched a digital wallet in Europe and South America and have piloted partner-based lending solutions in Australia and Argentina. Our wallet provides a foundational set of financial services, including a multicurrency bank account, P2P transfers as well as a Visa debit card, all integrated into our Western Union digital money transfer experience. Since last year, this service has been available in four countries in Europe.
And In the last quarter, we launched friends and family in Brazil, the largest economy in Latin America and an important digital market for us. This quarter, we also launched a wallet in Argentina under our Pago Facil brand in that country. In the coming quarters, we continue to prepare for a launch in the United States. We have now onboarded nearly 200,000 customers to our ecosystem and in the process have gained several insights.
Our traditional money transfer customers are more attractive than customers seeking a pure digital banking offering. Our best wallet customers are those that have migrated from either our traditional digital or retail offerings, including recently lapsed customers.
Onboarding and customer service matter more when enrolling someone in a more complicated product offering than in our traditional transactional-oriented money transfer services. As our product experience has improved, we have seen monthly transactions per active customer nearly doubled from 4.5 in January to 8.5 in September.
Our customers have a clear preference for physical debit cards over digital with a ratio of 5:1. We clearly see the need to rationalize our offering into 1 app instead of the 2 we currently have in the market in these 4 countries. We plan to begin this consolidation in the first half of next year.
While we are in the early days of this journey, I am pleased with the progress we are making, the learnings that we are developing and our ability to serve our customers in the future with a broader set of products and services. While we do not expect our ecosystem strategy to be a material contributor to revenue nor profits in the short run, we do think it can improve customer retention rates over time and position us to provide additional products and services to meet the needs of our nearly 120 million customers worldwide.
I'm also excited to announce that our U.S. prepaid debit card has now moved from friends and family to a commercial pilot and is available in a number of agent locations in the U.S. with plans to roll it out more broadly throughout 2024. The card will provide customers with a convenient and secure payment solution, allowing them to manage their finances with greater flexibility. By reintroducing a prepaid card solution, we aim to expand our product offerings and provide additional value to our customers.
The final pillar of our Evolve strategy, which we laid out a year ago was to improve the customer experience and drive ongoing operational excellence. We view this pillar as the force multiplier of the strategy. Over the last several quarters, we've talked about improvements in our process flow, such as Remember Me, Quick resend, One-Step Refund, all of which are aimed at removing pain points from the transaction process and creating a better customer and agent experience.
Recall last quarter, we said that 30% of all transactions completed on our Vigo brand in the month of June were initiated using our Quick Resend transaction process. This process allows an agent to complete a transaction in a fraction of the time than was historically required. I am pleased to report that the usage of this tool in North America has continued to accelerate with now 45% of all transactions in the quarter on our Vigo brand being initiated using Quick Resend technology and enabled Western Union branded agents to perform at an even higher level.
This technology has been rolled out to roughly 25% of our North American agent base and we look forward to continuing to expand it across our network globally. We are also excited about the rollout of our One-Step Refund, which is now available at 80% of our agents around the globe, and we hope to have this functionality ubiquitous across our global network over the next few quarters. This functionality allows us to solve an important customer pain point and simplify the refund process.
As part of our continuous improvement mindset, we've also created over a dozen other self-service tools to allow agents to do things like password resets, check the status of a transaction, check their transaction history. These improvements help reduce friction, calls and make for a better experience for our agents and customers alike.
Finally, I'd like to highlight a new partnership and some additions to our executive team. First, we are pleased to announce our exclusive partnership with Cencosud. Cencosud is the largest retailer in Chile and the third largest retailer across Latin America. This partnership will allow consumers to send money internationally from more than 250 of their establishments in Chile to more than 200 countries and territories where we operate.
Next, I would like to announce the addition of Ben Hawksworth, to our management team as our new Chief Technology Officer. Ben brings with him a wealth of experience, including more than 25 years of global technology leadership roles across multiple high-transaction fintech organizations. Ben was most recently the Chief Technology and Product Officer, with Progressive Leasing and prior to that, he was the Chief Information Officer at Fiserv's/First Data's merchant acquiring business.
I would also like to announce that Rodrigo Garcia, President of our Latin American business has now assumed the role of President of North America. Rodrigo has been with Western Union for nearly 20 years, having helped build our Latin American business over the past two decades. For the last several years, he has been successfully managing and growing our Latin American operations to now be the fastest-growing region of the company and we look forward to that leadership here in North America.
Looking ahead, we remain optimistic about our strategic direction and the positive progress we are making. We are pleased with the change in the trajectory of our business driven by improved transaction trends across both our retail and our digital businesses. We are excited about the launch of our new prepaid card solution in North America and the opportunity that, that presents as part of our expanding ecosystem offering. We remain committed to delivering value for our customers, our shareholders and other stakeholders while we adapt to this rapidly evolving market dynamics.
I would now also like to thank our 8,000-plus employees for their dedication and commitment to our customers and our partners. Their focused, passion and efforts every day have enabled us to make the progress discussed here and will enable us to continue to meet our Evolve 2025 goals.
Thank you for joining the call today, and I will now turn it over to Matt to discuss our financial results in more detail.
