Prepared remarks
Good afternoon, and welcome to Western Union Second Quarter 2025 Financial Results Conference Call. Today, we reported a reasonable quarter against a difficult macro backdrop as we continue to implement our Evolve 2025 strategy, which is focused on returning Western Union to sustainable, profitable revenue growth. Our strategy is to become a truly customer-centric company by being market competitive in the most important corridors, increasing our executional rigor and being the market leader for great omnichannel customer experiences. While we are investing in this evolution, we continue to deliver above industry average margins, return capital to shareholders and maintain our investment-grade credit rating. We remain optimistic about the long-term outlook. As our investment in becoming market competitive over the past two years has provided a foundation for what we believe will be future share gains propelling revenue growth in both our retail and digital businesses.
We are also continuing to build up our consumer service business, which contributed significantly in the quarter. Our Travel Money business will be approaching $100 million in revenue this year from nearly nothing a few years ago. For the second quarter, we reported revenue of $1.026 billion, on an adjusted basis and excluding the impacts from Iraq, this was a decline of 1% year-over-year. Overall, consumer money transfer transaction growth was down 3% in the quarter and cross-border principal growth was up mid-single digits on a constant currency ex-Iraq basis, speaking to the resilience of our customer base and their perseverance in the current macro backdrop. While our retail business in the Americas continues to face headwinds associated with the current geopolitical environment, our retail business in Europe performed well with mid-single-digit transaction and revenue growth. Our branded digital business increased transactions by 9% and adjusted revenue by 6% in the quarter.
Consumer Services adjusted revenue growth was up 40% in the quarter, driven by our acquisition of Euro Change and strong European travel which is the driver of our expanding Travel Money business. We expect our Travel Money business to have another strong quarter in Q3 as we continue to benefit from Eurochange acquisition and the summer travel season. Our adjusted earnings per share came in at $0.42 compared to $0.44 this quarter a year ago. A decent result as Q2 2024 benefited meaningfully from higher revenues and operating profits from Iraq, which were not repeated in the current quarter. Our discipline in managing costs is coming through. Matt will discuss our second quarter financial results and 2025 outlook in more detail later in the call. Now switching to the macro environment. As you know, our core business is fundamentally linked to human mobility. When people move, whether for education, employment or family, they rely on Western Union to send money across borders.
Because of this, immigration practices and policies around the globe play a critical role in our business with both short-term and long-term implications. We firmly believe that in the long term, the global mobility of people from lower productivity countries to higher productivity countries is essential if the more developed economies of the world wish to maintain their economic growth given declining birth rates and lower labor force participation rates. In the short-term, such as this quarter, we can see shocks in the long-term trend lines driven by changes in policies. While our global business has continued to show resilience and growth, the Americas and particularly now the United States, have become more challenging in recent months. We have observed an increase in immigration enforcement activity, including workplace inspections and high-profile raids in sectors such as agriculture, construction and food processing.
While these actions are limited in scope, the ripple effect would appear to be having an impact on our business. They can create hesitation within immigrant communities, leading to reduced transactional activity, changes in sending behavior and/or shifts towards less visible and/or informal remittance channels. These developments are creating short-term headwinds, especially in markets where recent enforcement efforts have been concentrated. While we remain confident in the long-term resilience of these customer segments, we are seeing market-level softness in some U.S. outbound corridors. In response, we are doubling down on our commitments to customer experience, trust and compliance. We continue to work closely with the government as well as community organizations and advocacy groups to ensure that our customers continue to have access to high-quality financial services. Earlier this month, legislation was passed in the United States that included a 1% tax on remittances.
This legislation will go into effect at the beginning of 2026. Generally excluded from this legislation are any remittances funded through noncash means, which excludes virtually all of our digital business in card-based retail or roughly 50% of our U.S. CMT business today. We expect that this would limit our exposure to less than 20% of our total company revenues that are tied to U.S. retail cash-based transactions. Looking at some of our largest retail partners in the U.S., we see debit card funding rates at 30% or even better, which causes us to believe that as debit adoption increases across our retail footprint in the U.S., our true exposure could be 15% or less of our global business. Given this, we believe a 1% remittance tax on cash-based remittances is not likely to have a meaningful impact on our business going forward. That said, we are rapidly building the required infrastructure to accurately collect and remit the tax when applicable.
Our customers will have multiple options for noncash remittance transactions, including card-based or bank-linked transactions at most retail locations in the U.S. and on our digital platforms. This will include card acceptance at Western Union and Vigo branded locations as well as through all Western Union digital offerings. U.S. customers can now also enroll in our Vigo Money digital wallet which offers a number of benefits, including being available as a tax-free digital funding source for remittance transactions. In addition to helping our customers use the bank products that they already have, we are accelerating our efforts to enroll our customers who currently do not have these types of accounts into our digital wallet. We see this as a potential accelerant to our efforts to roll out our digital wallet in the U.S. as our agents will now have a shared incentive to help enroll customers.
The move to card-funded transactions at retail could also generate cost efficiencies over time by replacing our cash handling costs with relatively lower debit fees while also reducing the high cost of cash handling that our agents bear themselves. Looking ahead, despite the near-term headwinds in the Americas, the broader trends remain clear. Global migration is not slowing. It is evolving. Whether driven by labor demand or political instability, people will continue to move, and we will continue to support them with solutions that are safe, fast and trusted. Now I would like to shift gears to another recent hot topic, stablecoins. Historically, we have taken a conservative view towards cryptocurrency as a legitimate alternative to more traditional cross-border money movement, given its historic volatility and lack of a clear regulatory framework. This position has served us well and prevented many low ROI investments that others have made.
However, with the passage of the GENIUS Act, we are actively revising our position. With a clear regulatory framework and guaranteed redemption value, we believe there are several opportunities worth exploring and investing in. We particularly like opportunities we see in treasury operations with increased settlement speed and potentially lower required partner funding requirements. Stablecoins-enabled solutions have the potential to reduce friction and float enabling faster, more efficient movement of value between our global network and local payout partners. We are actively testing programs that leverage on-chain settlement rails for back-end treasury applications. The goal is to reduce dependency on legacy correspondent banking systems, shorten settlement windows and improve capital efficiency all without compromising compliance, transparency or customer experience. These innovations align closely with our broader strategy to modernize the movement of money and we believe they could ultimately improve our ability to manage our global liquidity.
In addition to treasury operations, we continue to explore opportunities to leverage Western Union's technology and capabilities to first make our payments network available as an on-ramp and off-ramp to connect the fiat world with the digital crypto world; second, leverage stablecoins to enable global payments across digital channels; and third, provide buy-sell-hold capabilities to our customers to access cryptocurrencies in our digital wallets. We see that there are many near-term opportunities and have been pleasantly surprised at the high level of interest in using our payments network for on and off ramps in various parts of the world. We look forward to sharing more about our plans in this exciting area at our Investor Day on November 6. Another place where we are starting to see exciting progress is in the integration of AI capabilities into our core business processes. We see artificial intelligence as becoming a foundational enabler of the next chapter of our transformational journey.
Over the past couple of quarters, we've accelerated the adoption of AI across our core operations and are now beginning to see tangible results. A couple of great examples include using AI-powered customer service representative assistance to summarize transaction experiences, indicating to the CSR where specific points of issue are and helping them identify and solve our customers' problems without lengthy explanation. This has allowed us to lower handle times by over 50% where the CSR assistants are active, dramatically improving our customer experience. Also in customer service, we have integrated AI into our customer service quality assurance function, and this technology has enabled us to go from sub-1% sampling to over 90% call sampling in the most recent period. Real-time case-based feedback drives CSR learning and improvement at a much faster rate. In our tech department, we recently announced a partnership with HCL that gives us access to their Gen AI platform, AI Force, which will improve workflow efficiencies across both the engineering and application maintenance activities.
We now have several hundred engineers participating with code completion copilots, driving productivity and quality improvements in our software development processes. In our treasury and liquidity management operations, we're piloting AI models to better anticipate pre-funding needs and optimize capital deployment across corridors. This program will drive lower pre-funding requirements and allow us to bring back more cash to our corporate treasury for strategic mergers and acquisitions and/or return to our shareholders. With these experiences, we believe AI will enable us to continue to optimize our cost base for years to come, improving outcomes and reducing operating costs simultaneously. In conclusion, despite the current market outlook on our company, we are optimistic about the potential of our business and the platform it provides for a growing and profitable future. Our very resilient business model with its strong cash-generating characteristics is the foundation from which we continue to improve and build upon.
I look forward to coming back in the fall and sharing with you our plans for this platform and our positive outlook on the future. I will now turn the call over to our CFO, Matthew Cagwin, to discuss our financial results in more detail.
Thank you, Devin, and good afternoon, everyone. I will review our second quarter results for 2025 and update our financial outlook for the year. In the second quarter, GAAP revenue was $1 billion. When excluding Iraq, our adjusted revenue experienced a 1% year-over-year decline, primarily due to slowing retail performance in North America, although our branded digital and consumer service segments continued to grow. Adjusted operating margin remained consistent at 19% for both the second quarter this year and the same period last year. Our operating margins faced challenges from reduced contributions from Iraq and increased consumer fraud losses, but these were mitigated by savings from our cost redeployment program and favorable foreign exchange rates. Adjusted earnings per share stood at $0.42 in this quarter, down from $0.44 last year, influenced by factors affecting adjusted operating margins as well as higher interest expenses, somewhat balanced by a reduction in shares outstanding.
The adjusted effective tax rate was 16% this quarter, while it was higher in the same period last year due to certain tax items. Regarding Consumer Money Transfer, or CMT, transactions declined by 3% for the quarter, or 2% excluding Iraq, as uncertainties in immigration policies continue to disrupt the industry. We've observed changing customer behavior, with fewer transactions but higher average amounts per transaction. The average principal per transaction increased over 5% in the second quarter compared to the previous year on a constant currency basis. Our branded digital business saw a 6% increase in adjusted revenue and a 9% rise in transactions, marking the seventh consecutive quarter of solid revenue growth. Growth in our branded digital business is evident, particularly in the Middle East and APAC regions; however, we've noticed a slowdown in transactions from the U.S. to Latin America, especially to Mexico.
Similar to the last quarter, revenue growth in our branded digital segment was limited by loyalty accruals, which we expect to ease in the latter half of this year. Our payout to account business grew by nearly 30% this quarter, now representing almost 40% of transactions from our branded digital operations. We are actively assessing and expanding our payout capabilities worldwide, catering to our customer segment's unique needs. The growth in account-directed payments highlights the demand for flexible and quick remittance options, which provide higher margins and foster stronger customer relationships. Furthermore, we successfully negotiated lower account payout rates this quarter, maintaining stable profit margins despite challenging macroeconomic conditions and decreased revenue. We believe there remains significant potential to further reduce our account payout fees. Additionally, as Devin mentioned, we view the introduction of new remittance taxes as a chance to enhance our digital transformation and grow our digital and wallet businesses in the U.S., benefiting our customers while deepening our relationships with them.
Shifting to our retail business, we continued to see weaknesses in North America due to immigration policy disruptions impacting the independent channel. Growth in our Vigo business declined from double-digit increases last year to negative growth this quarter. We believe that fully implementing our Evolve strategy in North America will yield results akin to those we are achieving in Europe. Nonetheless, our retail business in Europe remains robust, particularly with over 15% revenue growth in both Spain and the U.K. In the U.K., we have shifted our partnership with the U.K. Post from nonexclusive to exclusive. In Spain, we have taken significant steps in line with our Evolve 2025 strategy, benefiting from a controlled distribution network with over 60 owned and concept stores, focusing on account payouts, which have seen close to 80% year-over-year growth. Spain also serves as the initial market for our dynamic pricing model, which allows us to leverage our scale and flexible approach to capture market share.
We remain optimistic about numerous opportunities to regain market share in our retail business and look forward to discussing these at our upcoming Investor Day. We will continue to execute on these opportunities as we strive to grow our retail segment. Now, regarding the Consumer Service segment, which now constitutes 14% of our total quarterly revenue, adjusted revenue surged by 41%, largely due to our Travel Money division. Consumer Services experienced acceleration since the first quarter because of our acquisition of Eurochange, which contributed significantly to our growth. Our bill-pay operations also outperformed this quarter, alongside our media network business, which gained momentum following a deferred contract from the first quarter that was fulfilled in the second quarter. Turning briefly to our operational efficiency program, we have saved $40 million year-to-date, pushing our total savings past $150 million, thus completing the plan announced during our 2022 Investor Day, two years ahead of schedule.
As Devin mentioned, the recent adoption of AI is starting to yield cost efficiencies, and we are confident in our ability to continue optimizing our cost structure going forward. Now discussing our cash flow and balance sheet, we generated $148 million in operational cash flow year-to-date, compared to $60 million in the same period last year. Both years involved over $200 million in cash taxes linked to our transition tax. I'm pleased to share that we made our final payment last quarter related to the transition tax, which means we will no longer bear this burden moving forward. Year-to-date capital expenditures amounted to $54 million, reflecting a 15% decrease from the previous year. We remain dedicated to strategically investing in key areas of our business while aligning agent compensation with our performance. On to our balance sheet, we maintain a strong position with $1 billion in cash and cash equivalents and $2.7 billion in debt.
Our leverage ratios are 2.8x and 1.8x for gross and net debt, respectively, providing us with substantial flexibility for capital returns or potential mergers and acquisitions, all while upholding our investment-grade credit rating. In the second quarter, we returned more than $150 million to our shareholders through dividends and share repurchases, alongside over $300 million in the first half of the year. This results in a cash return exceeding 10% relative to our current market capitalization in the first half and implies a 20% cash-on-cash return if annualized at our current stock price. Finally, on our 2025 outlook, assuming no significant changes in economic conditions, we are updating our guidance to reflect adjusted revenue expectations between $4.035 billion and $4.135 billion, factoring in continued growth in our branded digital business, double-digit growth in Consumer Services, and improvements in our retail sector. We anticipate operating margins to range from 19% to 21% and adjusted earnings per share to fall between $1.65 and $1.75.
Questions and answers
Matt, maybe first one for you on just the Eurochange acquisition. I think based on what you said, I'm calculating roughly 2 points of contribution to revenue growth in the quarter. Is that correct? And is that trending better than I think you had anticipated roughly 1 point of contribution for the year. So was it trending better than what you guys had originally thought?
Vasu, thanks for the question. Thanks for joining the call today. We are super excited about the acquisition. We got them at the very beginning of this quarter. To your question, yes, it's about 2% of revenue in the quarter. As you work your way through the year, typically the strongest quarter of the year is Q3 followed by Q2 with the lighter ones being Q1 and Q4. So our 1% comp, it was a full year comp at last quarter. And it's going very well. We're super excited to have the team on board. They've come in added a whole bunch of additional thought leadership around the Travel Money business, have given us a whole lot more optimism and confidence in the acquisition we made and super excited we're able to get a strong asset for a purchase price net of cash of about $30 million. So super excited about having it. Thanks for the question.
And just if I can ask a quick follow-up on just the immigration crackdown and the impact that's having on North America. Are you seeing any mix shift to the digital channel away from retail as a result of what's happening? Or is that not really something you're seeing in the numbers?
We are not as evidenced by the commentary, Vasu. We saw a slowdown from U.S. to Mexico in both the retail business and the digital business. As you know, the U.S. to Mexico corridor is the largest corridor out of the United States by a factor of almost 3. And so that is a powerful driver. We did not see a material shift from retail to digital. We saw aggregate volume demands in both channels go down.
I wanted to revisit the point about the slowdown in digital transactions this quarter. If I'm understanding correctly, digital is defined as being relevant on both sides of the transaction. I was curious if you could clarify whether the slowdown in digital is primarily tied to retail-originated transactions and, if so, could you quantify the exposure related to that?
Will, this is Matt. We actually have a different definition than some of our competitors in the marketplace. We have historically used Retail is anything that originates in a retail location or anything, and then digital in it originates on the digital side, whether it's paid out in cash or paid out to account. So there is a little bit of a definition thing there. As Devin just talked about in the last question, we are seeing a slowdown in the digital U.S. outbound into Latin America primarily into Mexico. That's something we're seeing in the central banks reporting that there's a slowdown of inbound transactions across the board. We did not experience this last quarter, but we're starting to see a little bit of a headwind on that.
Got it. No, I apologize, I guess I had that wrong.
We noticed a slight slowdown in payout to account, regardless of whether it was digitally or retail originated. Historically, payout to account was in the mid-30s to high 30s, but it has now shifted to the mid-20s to low 30s. This slowdown is evident even in the digitally originated payouts. We particularly observed this trend in critical corridors such as Mexico, Venezuela, Haiti, Guatemala, the Dominican Republic, Colombia, and Ecuador, where the slowdowns have been the most significant.
That's great detail, thank you. I want to shift to the stablecoin aspect and discuss some interesting points you mentioned. The aspect that particularly caught my attention was regarding the on-ramp/off-ramp solutions for other third-party stablecoin products. I recall the company previously provided some white-label options, which seems less common now, but it appears you're contemplating white-labeling your on-ramp/off-ramp for those in the stablecoin ecosystem. Could you elaborate on that opportunity and highlight the types of corridors or use cases where you could provide the most value for individuals engaging in stablecoin payments across borders?
Yes, certainly. So Will, as you know, the moving of stablecoins from one digital wallet to another digital wallet is pretty straightforward. The translation of that stablecoin back into a local fiat currency that someone can use to buy groceries or pay a bill is much more difficult. Our infrastructure around the world has been enabling that basically from central bank digital currency to local fiat currency for a couple of decades now. So transitioning to be a provider of that kind of platform and in many places in the world, that conversion is not the easiest thing in the world. So I think in lots of places in Asia, Central America, South America, Africa, where we've got great capabilities and great platforms. So we've been pleasantly surprised at how much the phone has been ringing since Circle went public and lots of enthusiasm came into this space and are actively participating with a couple of parties now doing pilots, both in South America and in Africa. So we'll come back to it, but we see it as a natural evolution for us, given what our capabilities are around the world and the value we can provide as the payments world digitizes towards blockchain-based platforms.
I wanted to ask about the visibility into some of the political headwinds that are impacting your LatAm and U.S.-Mexico business. Has the headwind kind of stabilized at this point? Or is it still kind of a moving target? And I guess that's a key way of asking could the impact worsen in the quarters ahead? Or are you sort of feeling like, okay, things kind of had a step function down, but now it's just a question of sort of anniversary-ing the step down?
It is a wonderful question that I wish I could give you a great answer to. What I can tell you is the impact we see is somewhat volatile. So June was much better than April, April was much worse than February. So was April the low point? I don't know. What I can tell you is increases in activity, visibility, and media attention all seem to have a negatively correlated effect on our customers willingness to particularly walk into a retail location. But as we said also, to a certain extent, in our digital channels as well. And so we're keeping a very close eye on it. We've got lots of folks on the ground in the communities, providing safe, secure, compliant products and services for our customers, but this is one that I think we're going to see how it goes.
Okay. One quick follow-up for me on stablecoins. I guess the question is, what are you seeing in the marketplace in terms of demand? I know there's a stablecoin use case where folks in emerging markets with maybe shaky financial infrastructure use it as an inflation hedge or a way to buy U.S. dollars. Is there any organic demand you're seeing for stablecoin utilization? Or is this just more of kind of a top-down, we will build it in case they come type of an approach basically?
I would aggregate conversations into two parts. And Matt can talk about the second part probably at greater length than I can. The two parts are, one, the reach outs that we're getting from what I would call platform or infrastructure providers who are assembling ways in which people can therefore then issue a stablecoin or use a stablecoin-based process through a series of platforms that connect all this stuff. So that's in your category of build it and hope they come. And so we have lots of reach outs from people who would like the ability to do particularly off-ramps, I guess, maybe on-ramps as well, but particularly off-ramps in many of these countries around the world that either have currency controls or have difficulty with local currency translation. The second, and this is where we're investing a lot of our time and energy is people who are building, in essence, B2B solutions and platforms, allowing people like us to move money around the world in a much more efficient way than the correspondent banking system.
And so the more productive conversations that are translating into economic value for us is how do we enable a stablecoin infrastructure for our core business, which is retail consumers either digitally or in the retail channel wanting to send money to family and friends. And then how do we make that seamless in real-time for the customer regardless of the fact that we're using a stablecoin versus a traditional Swift banking infrastructure platform. That is probably progressing much faster. But I can let Matt talk about it.
I'd just echo what you just said there, Devin. So we've got a couple of different partners we're already working with carefully right now in Latin America in particular, where currency controls and other challenges make it easier to use a stablecoin or cryptocurrency. Ultimately, for us, as you get this real time around the world, it will allow us to reduce the amount of capital we have around the world to help do payouts. So we're super excited to find a way to make this work, have partners that are very interested in engaging with us and see more of a pull today than just a conversation.
That's a great anecdote, Matt and I were chatting this morning. Over the weekend, one of our significant banking partners in India ran short of cash. We had some added volume that we didn't anticipate. And so we had some delayed payments over the weekend because by the time we were able to move money to India to top up our partner there, we weren't able to provide as timely service for our customers. In a stablecoin world, Matt could make that happen 24/7 as soon as we saw the ability for the partner to make outbound payments reduced by prefunding levels, he could just top up in real-time with a stablecoin.
Just given the tightening U.S. immigration policy, and we'll probably be in this environment for at least the next 3.5 years. Do you think you have to tweak your Evolve 2025 strategy at all?
We are very committed to the strategy. We believe that our customers are resilient. We believe that the vast majority of our customers are productive members of the societies in which they have chosen to join around the world, including here in the United States. Recall that in order to send money home, one needs to have money in the first place, which means you likely have a job, you have food on your table, shelter over your head before you choose to send money home. We are going to remain committed to that customer. And as this policy and process evolves, we believe that things will stabilize. On any given day, we're still sending nearly 100,000 transactions to Mexico. It's just not growing 10%, 12%, 15% like it has been the last couple of years. So I think we will likely see less growth over the next couple of years with the current policies and approaches than maybe we have in the last couple of years, particularly here in the U.S. But we don't think it fundamentally changes the core intrinsics of the product we offer, the stability of the market, or the nature of the opportunity.
As you know, we've evolved the strategy to also include consumer services. And so we will be placing a greater emphasis on driving non-remittance-based products and services. In the prepared comments, I talked about the rollout of our digital wallet, which includes a debit product, a bill payment product, and the ability to do fee-free P2P, wallet to wallet within the United States. So rolling out products and services like that more rapidly in the U.S. will obviously become a greater priority as we see the top-level line growth of the core remittance product slowly stabilize.
And then just one follow-up for me. Just on the comments you made on the 1% remittance tax, you make a case for increased debit usage. I'm just curious for customers that have a debit card, wouldn't you anticipate them just using digital means to transfer money rather than using a debit card right at the retail location?
Interestingly, the retail value proposition is sometimes about cash. But most of the time, it's not actually about cash. And as I said, some of our big national grocery store chains already have 30%, 40% debit enablement and so we recently did a customer survey with a group of U.S. retail customers to try to get a better read on this. And over two-thirds of them indicate that they will remain in the retail channel and use a debit card. The convenience, the familiarity, the language, the certainty, in some cases, the paper receipt that they have as evidence that they sent the money is valuable to them versus trying to enable a digital app or send money digitally.
Two brief ones, actually. One is during the prepared remarks, you made a couple of comments around fraud losses in the quarter. I just wanted to see if you could bring that to life a little bit. What is the scenario in which that happens or happened? And then a general question around large partners with any contract renewals that might be coming up that we should be aware of, either exclusive deals that could be renegotiated, etc., if there's anything on the horizon that we should be thinking about?
Awesome, Tim. Thanks for joining the call today. I'll tackle the first one and Devin will hit the second one. But on the fraud loss side, we, during the quarter, early June, implemented a new real-time payment network. When that happened, we ended up having a duplicate payment challenge. We've been working to recover those funds. It's not material, but we thought it was important enough to call out as you could see, we're still able to maintain our 19% margins. So not a big deal, but an item that we're working our way through.
As you know, particularly in the U.S., though it's true all over the world, Western Union has historically enjoyed a preeminent position with the largest retailers in postal systems. In any given year, there's a series of renewals that come up. I think now we're through all of the ones for 2025. I'm pleased that we've renewed, I don't know, Matt, we probably renewed over a dozen of the large strategic partnerships in the U.S., including grocery store chains, major check cashers, and other everyday financial service providers. As we noted in the prepared comments, we renewed with the U.K. Post taking that relationship exclusive. And we continue to look forward to renewals with postal systems in Spain, Australia, and other countries around the world. So I don't think there's anything unusual so far this year, and we'll continue to keep you posted.
A couple of earlier questions I wanted to follow up on. So first on Ramsey's question on visibility. I think if I heard right in the prepared remarks, you mentioned an improvement in retail being baked into the guidance, so I won't ask the geopolitical part of the question again. But if I look at transaction growth across each of the regions in digital, growth decelerated pretty much across the board other than APAC. So just wondering, given the volatile macro, what gives you the confidence and visibility into the improvements in retail? It could be comps, other initiatives, but it would be great to hear more color. And then maybe how much improvement in retail is actually baked in here?
Nate, this is Matt. There's not a massive amount of improvement, but there's not a deterioration further in the guidance. We do have some glimmers of hope with certain partners we're working on right now that we think will give us a little bit of an uplift in the back part of the year, some expansion of non-exclusive to exclusive, and some potential other partnerships. So it's a modest amount. So I don't think you should worry that if it stayed where it is today, we fall outside of our guide, and that's to take it down further. But to get at the upper end, we've got to get some improvement.
So a couple of things. One, we spent a fair amount of time and energy influencing or trying to influence or hoping we could influence the nature and structure of the legislation that passed a significant improvement from the original version that emerged from the house, both at 5%, but with all kinds of complicated requirements on residency status and things that would be quite difficult to administer. With the rollout of our next-generation point-of-sale platform, WUPOS 2.1, we will be able to easily enable this as it is simply a 1% tax on cash and prepaid card transactions. So that will be quite easy to discern in the system. We will collect the tax at the point of sale and remit to the government. So the technology investments and the requirements to implement it will be relatively low, and we'll certainly be ready by the time the law is enacted to be able to execute that with high quality and precision. Fortunately, for us, the tax itself is an incentive. So I don't know that we have to do anything other than help people avoid the tax, and we should get uptake on the debit card. And we're hoping enough to spur people to want to open Vigo wallet accounts, which will help us build that product without having to spend an enormous amount on marketing.
I appreciate the macro challenges, and I just wanted to follow up on that end. So last quarter, there were some FinCEN orders against specific ZIP codes near the Southwest border. This quarter, we saw additional FinCEN orders against a couple of Mexican financial institutions. So is there any way to think about how much of the demand destruction in the corridors is from the regulatory side and from that supply side of potential partners that you're working with or actual consumer demand?
I think it's tough to disaggregate. What I can tell you is the partners that were cited publicly were very, very small for us. We did not have much volume, if any, going to those partners. Our partners in Mexico are the large financial institutions, BanCoppel and Elektra and Bancomer who are the majority of our transaction volume, both pay out to account and payout to cash. So obviously, any time there is regulatory action that is going to affect some volume and some perception of the market. My personal hypothesis is it's much more overall market demand and changing consumer patterns and behaviors while we get through this particular chapter in the evolution of the U.S. as immigration policies.
Got it. And just as a quick follow-up. With the stock where it is, is there any thoughts in terms of capital allocation changing the buyback versus dividend strategy?
There is not.
So I wanted to ask one about this opportunity, 3 in stablecoin. Devin, I thought this is potentially quite structurally important. So where you're seeing reduced reliance on the dependency of legacy banking systems. I was hoping you can elaborate on that. Do you see that more as a cost takeout opportunity? Or is that potentially revenue-enhancing? And then my last one is you've been successful in Europe now for a while with the new strategy. I was wondering at what point you anticipate templatizing your successes there over here?
Great questions. Initially, I think we believe the adoption of a more crypto-enabled money movement platform will create efficiency and effectiveness in our core offering. So it will increase speed, reduce friction. And as Matt says, hopefully, enable us to better manage the liquidity that we have floating around the system every day. Ultimately, if the value proposition can improve, potentially, you can draw market demand and you can increase the overall category and thus revenue. So we see it as an interesting way to evolve how money moves and a potential opportunity to increase the quantity of people who are interested in moving money, and therefore, grow the top line as well. But I think that is to be seen. You had a second question? Yes. So we are actively engaged in that project right now. So we've asked the current head of our European business to second himself here in the U.S. He just came off of a six-week tour around the U.S. and has gone back to Spain for a couple of weeks, and then will be coming back here later in the summer.
So we are actively working to implement the European model and structure, both from a go-to-market standpoint in terms of how we manage the sales force, how we manage the corridors and the tactical pricing, but also just in how do we think about the synergies that come in from operating both of our major regions kind of on the same operating model that allows us to get scale and to get better coordination, particularly in payout markets.
Thank you for joining today's Second Quarter 2025 Earnings Conference Call. We hope you have a great day.