Prepared remarks
Good day, and welcome to the Western Union Third Quarter 2025 Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Tom Hadley, Vice President of Investor Relations. Tom, please go ahead.
Thank you. On today's call, we will discuss the company's Third Quarter 2025 results, 2025 outlook, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Joining me on the call today is our CEO, Devin McGranahan; and our CFO, Matt Cagwin. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission. Including the 2024 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in our earnings release attached to our Form 8-K as well as on our website, westernunion.com, under the Investor Relations section. I will now turn the call over to our Chief Executive Officer, Devin McGranahan.
Good afternoon, and welcome to Western Union's Third Quarter 2025 Financial Results Conference Call. Today, we reported a solid quarter despite a challenging macro environment, showcasing the advantages of our large-scale global and now multiproduct business model. We experienced strong performance in many corridors and product categories, although this was countered by ongoing weakness in North America in several key areas, particularly the U.S. to Mexico corridor. We are making strides toward becoming a more customer-focused company and have made significant investments to enhance our competitive stance, increasing our execution and operational effectiveness. Consequently, we have improved the omnichannel customer experience across our offerings. This quarter, we saw varying degrees of performance in regions such as Europe, South America, and Asia. Our retail operations in Europe, the digital sector in Asia, and consumer services in Europe and LACA drove this growth.
Our objective is to further implement our strategy across all markets and channels, benefiting as conditions improve. A key part of this strategy is to enhance our U.S. retail model. We aim to establish a robust foundation of strategic accounts, featuring a competitive mix of exclusive and nonexclusive agents, with a few high-performing company-owned stores at the top. Our recent acquisition of Intermex, now that we have passed the HSR review period, will significantly speed up our progress toward this aim. We are optimistic about our long-term business outlook, anticipating stabilization in migration patterns and seeing the positive impacts of our investments to enhance market competitiveness over the past two years, which have laid the groundwork for continued revenue and market share growth. There are also numerous opportunities to expand our consumer services, which were a major contributor to our results this quarter.
Over the past three years, we have achieved above-average industry margins and returned significant capital to shareholders through dividends and share buybacks. We will maintain our focus on delivering essential investments through cost discipline and effective operational management. For the third quarter, we reported adjusted revenue of $1.033 billion, which represented a year-over-year decline of 1% when excluding impacts from Iraq. Consumer money transfer transaction growth was down 2.5% in the quarter, excluding Iraq, while cross-border principal growth increased in the mid-single digits on a constant currency basis, highlighting the resilience of our customer base in the current economic landscape. While our retail segment in the Americas faces challenges from the geopolitical climate, recent trends show some improvement. Although it's premature to declare a definitive bottom, signs of stabilization are emerging.
Our retail operations in Europe continue to perform well, with mid-single-digit growth in both transactions and revenue. Our branded digital business saw a 12% increase in transactions and a 6% rise in adjusted revenue this quarter, while adjusted revenue in consumer services surged 49%, driven by our acquisition of Euro Change and a robust European travel season, fueling growth in our travel money business. Last week, I was in London with our new team to discuss strategies for 2026, and we remain excited about expanding both retail and digital aspects of that business. We project Consumer Services will have a robust fourth quarter, with our travel money business nearing $150 million in revenue by 2026, a remarkable increase from nearly nothing just a few years prior. Adjusted earnings per share were $0.47, up from $0.46 the same quarter last year. Our operational cost management continues to be effective.
Matt will provide more detail on our third quarter results and 2025 outlook later in the call. Regarding the macro environment, global economic conditions are stable, with inflation rates decreasing in critical markets and strong GDP outlooks despite high interest rates. These conditions create a supportive backdrop for our business and should improve further as we enter a cycle of interest rate cuts in both the U.S. and Europe. Migration dynamics remain complex and continue to evolve, as our business is inherently tied to human mobility. When people relocate, they rely on Western Union to send money home. This relationship makes us sensitive to changes in migration trends, policies, and enforcement. However, our global diversification across various countries and channels reduces specific regional risks. Trends toward more restrictive migration policies—similar to those currently in the U.S.—influence our business dynamics.
Recent policy changes have resulted in a notable decrease in border crossings and heightened enforcement activities, fostering uncertainty among migrant communities, which impacts customer behavior as some reduce transaction frequency or switch channels. Nonetheless, the U.S. market is not uniform. In the last quarter, we saw positive transaction growth to Brazil, India, Haiti, Panama, and Vietnam, with transactions remaining flat or slightly negative in corridors such as the Philippines, Jamaica, Guatemala, and Colombia, offset by substantial declines to Mexico, El Salvador, Peru, and Ecuador. The U.S. to Mexico corridor is critical for monitoring as we have recently observed some improvements from the low points back in June, with data from the Bank of Mexico indicating a decline of 8% in recent months, a notable recovery from earlier lows. Additionally, emerging positive trends may arise from macro shifts, like strong outbound remittance growth in Argentina and developments in corridors such as Canada to India and Singapore to Indonesia.
Despite current challenges, we remain confident that the long-term trajectory is positive. Global migration is adapting rather than vanishing. People will continue to move in pursuit of better opportunities, education, and connections with family. Western Union is committed to providing trusted, compliant, and accessible financial services to these individuals. Looking forward, our path is clear. We will meet the evolving demands of both senders and receivers through a range of fast, secure solutions grounded in trust. Our 100 million-plus global customers demonstrate resilience, and we embody that strength. In recent years, we've expressed our desire to become a more digital company and broaden our product offerings to meet our customers' changing needs. We consider our strong brand presence and extensive existing customer base as key assets that allow us to build our digital business cost-effectively without significant marketing expenditures.
Ahead of our upcoming Investor Day, I want to emphasize the considerable strides we have made in evolving into a more digital-centric company. Our transformation is more than just about technology; it focuses on redefining customer service, strengthening relationships, and opening new growth avenues. Over the past few quarters, we've accelerated the shift to digital channels, with our branded digital business achieving eight consecutive quarters of mid-single-digit or greater revenue growth and strong transaction momentum in regions like the Middle East and APAC. Our digital transactions now constitute over 40% of the principal we handle globally. Moreover, we are expanding our payout-to-account capabilities, which now represent more than half of the principal sent through our digital business. We have also enhanced card acceptance and digital funding options across both our retail and digital platforms, reflecting our commitment to becoming a more digital enterprise.
Currently, more than 55% of our money transactions are digital. Our global digital payment network is a vital asset that we will continue to leverage for future growth. Progress on our digital wallet strategy is well underway, with operations now live in seven countries, including our recent launches in Brazil and the U.S. We've onboarded over 500,000 customers, with a growing number of active users. Capturing payouts in our wallets is proving beneficial; Argentina is nearing 15% of all inflows, and Brazil, less than a year post-launch, is approaching 5%, which aids in reducing commissions and enhances the customer experience for digital receipts. We expect to gain change of control regulatory approval in Mexico before year-end and have secured a license for our digital wallet service in Australia, scheduled for a Q1 2026 launch. We envision a future where we establish a two-sided payment network with digital wallet capabilities across all significant markets.
We plan to facilitate both traditional and digital asset transfers for our customers and potentially others as well. Importantly, our approach to digital is not just a channel but serves as a platform for innovation. This includes our new point-of-sale system, which is now prevalent worldwide and enables our retail network to connect digitally to all our account and wallet payout points swiftly. Successfully rolling out this system in under ten months is a testament to our technological progress and capabilities. With this new platform implemented in the U.S., we are making strides in meeting customer needs as we prepare for the January implementation of the new 1% remittance tax on cash transfers, positioning ourselves advantageously. Looking ahead, our strategy is clear: we will continue to modernize money movement, broaden our product offerings, and provide reliable, compliant financial services to our global clientele.
We are developing a resilient, scalable platform ready for future challenges. We look forward to discussing this further during our Investor Day. To leverage our strong brand, trusted customer relationships, and omnichannel capabilities, we have been enhancing our product range with new or improved offerings that our customers desire. We have made notable progress in enhancing our Consumer Services segment over the past two years by investing in our existing products to augment their functionality and value, in addition to introducing new products such as travel money, prepaid cards, digital wallets, and our advertising business. Currently, Consumer Services contributes roughly 15% of total company revenues, reflecting a 70% or over $200 million increase in the last two years, translating to five percentage points of additional revenue growth for the company. Travel Money, a significant revenue driver, is expected to generate around $150 million in revenue by 2026, compared to almost nothing in 2023.
We believe there is tremendous potential to explore unique and innovative monetization methods for our diverse asset base, including our vast customer base, our growing array of trusted brands, and our digital payment network. Recently, we've identified opportunities to accelerate the development and application of digital assets, supported by our efforts to modernize technology, invest in our digital payments infrastructure, and deploy digital wallets globally. Traditionally, Western Union has approached cryptocurrencies cautiously due to concerns regarding volatility, regulatory issues, and customer protection. However, following the passage of the GENIUS Act, we're witnessing potentially valuable opportunities to integrate digital assets in ways that enhance operational efficiency, reduce friction, and improve customer experiences. We are currently testing stablecoin-enabled solutions within our treasury operations, focusing on using on-chain settlement methods to lessen reliance on traditional correspondent banking systems, reduce settlement times, and enhance capital efficiency.
We see substantial opportunities to expedite money movement with more transparency and lower costs, maintaining compliance and customer trust levels. Moreover, we are investigating how our global payments network can act as a bridge between fiat and digital currencies. We're witnessing strong interest from prospective digital-native partners leveraging our infrastructure, particularly in areas where access to conventional banking is limited, but crypto adoption is on the rise. Finally, we are enhancing our partnerships to enable customers to manage and hold stablecoin digital assets, fulfilling a need for more choices and control in how they handle their finances. In many regions, the ability to hold a U.S. dollar-denominated asset offers significant value as inflation and currency depreciation can swiftly diminish purchasing power. These advancements closely align with our broader strategy to modernize money movement and complement our investments in digital channels, payout-to-account capabilities, and next-gen platforms like our digital wallets.
Together, they position Western Union to lead in a future where digital assets could increasingly influence global finance. We look forward to sharing more insights at our upcoming Investor Day. To conclude, I want to reaffirm our confidence in our current trajectory. Western Union is undergoing transformation, becoming more digital, adaptable, and in tune with the evolving needs of our global customer base. We are expanding our product offerings, modernizing our platforms, and unlocking new growth opportunities across all channels. This transformation encompasses more than just technology; it’s about building a resilient and scalable business that delivers trustworthy financial services amid a rapidly changing landscape. Whether through quicker account-directed payments, enhanced digital wallet functionalities, or innovative solutions involving digital assets, we are positioning Western Union to lead the future of cross-border fund transfers.
We remain focused, disciplined, and optimistic. Our strategy is effective, our execution is gaining pace, and our platform is stronger than ever. I look forward to discussing more at our forthcoming Investor Day and continuing this journey with all of you. Thank you. I will now turn the call over to Matt Cagwin, our Chief Financial Officer.
Thank you, Devin, and good afternoon, everyone. I'm excited to discuss our third-quarter results and our financial outlook for 2025. In the third quarter, GAAP revenue was $1.033 billion, aligning with our expectations, while our adjusted revenue, excluding Iraq, decreased by 1%. This was due to growth in Consumer Services and branded digital being offset by our retail segment. Our adjusted operating margins were an impressive 20%, up from 19% during the same period last year. This improvement was largely due to our continued cost discipline, having completed our cost redeployment program ahead of schedule. Adjusted EPS was $0.47, slightly above our expectations, compared to $0.46 last year. The increase in adjusted EPS was supported by our cost management and a reduction in outstanding shares, but was partially offset by higher interest expenses and an increased adjusted tax rate. Our adjusted effective tax rate rose to 12% from 8% a year ago, mainly due to specific benefits we experienced last year.
Consumer Services adjusted revenue surged by 49% in the third quarter, propelled by our Travel Money and bill pay businesses. The Consumer Services segment has seen significant growth since the first quarter, largely thanks to the acquisition of Euro Change. Our Travel Money division accounted for about half of our growth this quarter, and we are continuing to see double-digit organic growth in consumer services. As predicted, consumer service margins improved by 1,300 basis points to 22% this quarter, as our new product offerings began to gain traction. As Devin mentioned, we've made substantial progress in expanding our range of products and services, and we are confident that there's further potential for growth. For example, our Travel Money business has grown to $100 million in revenue and is projected to reach $150 million next year, a remarkable increase from almost nothing just a few years ago.
We see numerous opportunities to serve our customer base of over 100 million and look forward to sharing more as new ideas are developed and launched. Moving on to our consumer money transfer (CMT) business, transactions declined by 3% this quarter, or 2% when excluding Iraq. U.S. immigration policies are still impacting our business, but the third quarter trends were similar to those seen in the second quarter. Our customers are sending fewer transactions but with higher average amounts. Our principal transactions went up roughly 6% compared to last year on a constant currency basis. Our branded digital business saw adjusted revenue growth of 6% and transaction growth of 12%, marking the eighth consecutive quarter of solid revenue growth and a return to double-digit transaction growth, driven by strong performance in the Middle East. Our partnerships established in the second quarter mainly target account-to-account transactions, which has impacted the disparity between revenue and transactions.
Nonetheless, we are enthusiastic about these relationships as they extend our presence in the fast-growing Middle East. We also witnessed robust growth in our digitally initiated payouts to accounts. Notably, principal grew over 40% and now constitutes over 50% of all principal dispatched from our branded digital operations. We are continuously enhancing our payout capabilities globally to address the evolving preferences of our customer segments. The increasing demand for account-directed payouts illustrates our customers' need for speed, adaptability, and convenience. This shift represents a unique chance to deliver higher-quality service while fostering long-term customer relationships. Regarding our retail business, performance has remained mostly consistent with the second quarter, although there is some weakness in North America due to immigration policies and mid-single-digit growth in Europe.
Shifting to our cash flow and balance sheet, we have generated over $400 million in operating cash flow year-to-date, compared to $272 million at the same point last year, which includes over $200 million in cash taxes related to the transition tax. We are pleased to have these obligations behind us, granting us the added flexibility to either invest our free cash flow into the business or return it to our shareholders. Our year-to-date capital expenditures stood at $101 million, a 10% increase year-over-year, and will be slightly higher than previous trends due to strategic agent renewals and an infrastructure refresh. We maintain a strong balance sheet with around $1 billion in cash and cash equivalents against $2.6 billion in debt. Our leverage ratios remain at 2.6x gross and 1.7x net, providing us ample flexibility for capital returns or potential acquisitions while preserving our investment-grade credit rating.
In the third quarter, we returned over $120 million to our shareholders through dividends and share repurchases, with more than $400 million returned over the first nine months of the year, offering a cash return of over 15% based on our current market capitalization. Looking ahead to 2025, assuming no significant changes in macroeconomic conditions, we are reaffirming our guidance, projecting adjusted revenue between $4.035 billion and $4.135 billion. Given our current trends, we expect revenue to align closer to the lower end of this range, which reflects the ongoing benefits from our branded digital business, double-digit growth in Consumer Services, and slight improvements in retail. It's important to note that our Consumer Services business demonstrates different seasonal patterns compared to our CMT business. Travel Money is typically stronger in the second quarter than in the third quarter.
Additionally, our performance in the fourth quarter of last year was significantly boosted by media demand linked to the U.S. presidential election. These comments are not intended to imply that Consumer Services growth will fall below our double-digit target; rather, we anticipate it may not reach 49% next quarter. We continue to expect adjusted operating margins to fall within the range of 19% to 21%, and we anticipate adjusted EPS to be between $1.65 and $1.75, likely skewing towards the upper end of that range based on current trends. In conclusion, I want to highlight the momentum we are building across our operations. Western Union is executing with discipline, vision, and delivering results while preparing for the future. Our focus on becoming a digital-first company is yielding real progress, with eight consecutive quarters of mid-single-digit branded digital revenue growth and rapid expansion of our payout capabilities.
We're not merely reacting to changes; we're actively embracing them. Our Consumer Services segment is unlocking new revenue opportunities, our operational efficiency program has surpassed expectations, and our financial foundation remains robust, enabling us to reinvest and innovate while returning capital to shareholders. I look forward to seeing many of you at our Investor Day on November 6, and I appreciate your participation in today’s call. We are now ready to take your questions.
Questions and answers
Our first question comes from Tien-Tsin Huang from JPMorgan.
Good to catch up with all of you. Yes, no surprises. It sounds like you were encouraged by some of the recent trends in the retail and Americas segment that were mentioned in your prepared remarks. Can you elaborate on that? Was that related to the statements you made regarding Mexico in recent months? I would like to get a bit more detail on that.
Yes. Tien-Tsin, thanks. We are seeing the lows from the mid-summer have come back a bit, particularly in Mexico. But more or less across some of the important corridors. As highlighted in the prepared comments, we still see corridors that are growing and some important ones that are now approaching what I'll call stable or flat. So we remain positive that in the back half of the year, those trends will continue and the outlook will improve, but I would say things are still lumpy.
Okay. Good. I'll ask on Consumer Services quickly. Just Travel Money. You mentioned a few times that will probably grow 50% next year. Just curious on the visibility there and the incremental margins on that business, just to highlight it because it is a bigger contributor now.
So our expansion next year is we'll have one more quarter of the grow over from Eurochange. We're pushing into other new markets based on now we've got a good scale. We've got a management team that's very competent. As Devin talked about, we were in Europe last week, and we actually spent most of the week with the management team there and came away very impressed by their quality of the stores, the strength of the management team and their vision for how we can continue to expand both same-store sales as well as across new footprints. And the last little fun fact for you. When we did the acquisition, we had talked probably two quarters ago that we bought it for a little under 5x. Now having owned it for a couple of quarters, they're meaningfully above our models that we had done and on track to have a great return for us.
Our next question comes to us from Darrin Peller from Wolfe Research.
We see the profitability, but I wouldn't focus on penetration.
Darrin? Your mic is really, really hard.
I think you might be better now. Try it again.
Just the same reason of penetration.
Darrin, you got a bad connection, maybe try coming back in, and we'll put you back in the queue.
Our next question comes to us from Will Nance from Goldman Sachs. Please ask your question.
I hope my audio is not bad. I'm hearing issues on a few people's calls, so I wanted to discuss some of the trends in LACA. It seems like the trends improved a bit this quarter. Echoing the earlier question about North American trends, is there anything noteworthy regarding the linearity of results? Are we beginning to face easier comparisons and perhaps starting to see changes in migration patterns? Any insights on how you view this in the near term would be appreciated.
Yes. And so a couple of things. One, we've seen some overall market stability, which we commented in the public comments. And as you know, it was in this quarter last year where we highlighted the impacts and the effects of the then recent elections across certain parts of South America, Northern South America and Latin America. We are now starting to see the lapping effects of some of those declines when the Darién Gap was closed and when we had presidential elections in Venezuela and a few other places. Including Mexico. And so I think you're starting to see both the effects of some market stability as well as now we're a year into what was a relatively significant change in outlook and trajectory for the region following a series of elections.
Our next question comes to us from Bryan Keane from Citi.
Guys, thanks for having me on the call. Just wanted to ask on digital, in particular, it improved from 9% to 12% in transaction growth from the second and third quarter. But the revenue growth stayed about the same at 6%. Just trying to figure out the delta change there, why we didn't see a lift in the revenue as well?
Bryan, thanks for joining the call. Most of the acceleration we experienced was due to our partnerships in the Middle East, which involve account-to-account payouts that typically come with a lower revenue per transaction. It's really a combination of these factors. We've noticed a slight slowdown in revenue and transactions, but that didn’t significantly impact our overall performance on both fronts.
I think the other thing that we've historically talked about given the current market dynamics where new customer pricing and we've actually seen some more aggressiveness in the marketplace on some of those offers, not just offering one-time fee-free but in some cases, by some folks, two and three transactions free for new customers. The new customer growth causes a degradation in the revenue line. And so anytime we see an acceleration in transactions, we're likely to see, as you saw this time, stability or maybe even if we could accelerate it enough, some degradation in the revenue line relative to the transaction line. Historically, we are and will continue to be looking for ways to cost-effectively accelerate and knowing that revenue will catch up over time.
Got it. I have a follow-up on the guidance for the fourth quarter. You're indicating a slight improvement in retail as we head into the fourth quarter. Is that improvement mainly due to macro factors, or is there something specific your team is doing to drive this improvement in retail?
Really, it's driven by a few things. One is the comment was made a minute ago about LACA. We're starting to lap easier comps as we hit the latter part of the year. We've also seen some good momentum and some customer wins that will help or agent wins.
The other thing I would add, Bryan, is that we asked one of our leaders from the European region to spend significant time in the U.S. implementing aspects of our successful go-to-market model, especially related to independent agents and our strategic pricing model, along with improving how we manage the independent agent network. We're beginning to see positive results from this effort, and we are excited about the potential to integrate Intermex and speed up the retail program more rapidly than we have over the past year to year-and-a-half.
We're going to take the next question from Darrin Peller from Wolf Research.
Yes. Is that better now, guys?
Much better.
Where do you see overall digital penetration heading in the long term? The company has reached nearly 38% global penetration of transactions this quarter. Will that number continue to rise? Additionally, could you elaborate on how this affects the take rate? Lastly, regarding the principal per transaction increasing by 6%, does this suggest a trend where people are sending more money but less frequently, possibly due to migration policies in the U.S. or is it indicative of something more structural?
Yes. It's a great question, Darrin. And so I think there are two or three things I think we would highlight what we believe and aspire to a reasonably stable retail business around the world, which will be somewhere between minus 2% and plus 1% over time as we get our operating model in place as we believe the retail value proposition does have merit, and there are many migrants, particularly new to country see value in that. We do expect digital to continue to grow at double-digit rates into the certainly intermediate if not indefinite future, which we will see over time, the ability of that digital to become a larger and larger piece of our business with the stability in retail. We also know, at least for Western Union, there are a lot of places in the world. U.S. to India is one of them. U.S. to Guatemala is another one, where our digital penetration still has plenty of opportunity to grow relative to both the size of the market and our current market share. So we could even see some acceleration in that low double-digit growth that we've been seeing for the last eight to ten quarters as we focus on specific corridors going forward.
Thanks, Devin. Matt, just a quick follow-up to understand if Eurochange is solely focused on consumer services. I'm trying to get a better sense of the organic growth segments.
So, no, it's not just one area. We actually utilize the business for both CMT and CS. They were already our agent before we acquired them. Any remittance transactions would go under our CMT line, while the rest falls under CS. The key takeaway is that we are leveraging that presence for travel money, prepaid cards, and remittances, and we categorize them based on the type of product.
Our next question comes to us from James Faucette from Morgan Stanley.
I wanted to ask quickly about dynamic pricing in Spain. It seems like you've seen some good results there. And just curious how quickly you may be able to roll out to other markets and maybe start to garner some of the same benefits?
Thanks, James. Great question. We have rolled out dynamic pricing or strategic pricing, as we call it, probably in about half to two-thirds of our European market. We asked the leader of our European market to come here to the U.S. to help us. And we are in three metro markets at some scale now in the U.S. with the anticipation that over the course of '26 and the integration with Intermex, who has a very similar model that will be able to be kind of across the U.S. by the end of 2026. It has less applicability in other parts of the world like the Middle East, which, we have a lot of large master agents where they have a lot more control over pricing or frankly, in Asia, which has gone significantly more digital than either the U.S. or Europe is.
Got it. That's really helpful. And then I think, Matt, you touched on this a little bit, but I may have missed it, is that you guys have done a really good job in terms of your cost efficiencies, programs, et cetera. How should we think about like future programs or where there may be incremental opportunities on that side?
Yes. Thanks for the question. I'll actually spend about five minutes of that in two weeks from today talking about our next step, but I'll leave a teaser. We still think there's meaningful opportunity ahead and look forward to sharing that with you on the 6.
And James, one of the things, the first part of our program really was what I'll call the blocking and tackling and Matt and the team, the broader management team did a great job of creating the normal operational efficiencies in terms of managing our real estate footprint, reducing customer service calls, managing vendors. We're now starting to really see the benefits as we implement new technology. We have some adoption of AI into both our development functions, our customer service functions, where we could start to see some shifting of the business model, which will, again, as Matt said, yield results for a reasonably long period of time relative to the first chapter of this, which was really just blocking and tackling.
Now I got to remove that page in my presentation. So, I've got more work on Investor Day.
Our next question comes to us from Tim Chiodo from UBS.
Great. On the Intermex, 10,000 locations, they were always viewed to be very strategically well placed, but one of the advantages was the speed, the UI, the UX, and it was generally talked about as being better for the agent, and that was something that was attractive to them. Is that an advantage that somehow gets ported over to Western Union? Or does that system get retired in the sunset and those locations move on to the Western Union platform? How will that all play out?
It is our intention to maintain both the Intermex brand, the Intermex locations and the Intermex go-to-market model. We also are now as we begin integration planning, looking at ways in which we can take that into Intermex model and bring it into our Vigo independent agents and our Western Union branded independent agents here in the U.S. So we have aspirations of belief that we think we can learn a lot from what they do, and we will preserve everything that they do, the way they do it today.
Our next question comes to us from Rayna Kumar from Oppenheimer.
I think there's an echo here, so it's difficult to hear me. Regarding North America, it appears that trends have worsened slightly compared to the second quarter. Do you anticipate improvement from this point? Have we reached the bottom in North America?
Yes. So the quarter was, as I described in the call, what I would say is lumpy. We had a little bit better July than August was pretty tough. And then we started to see some trends in the back half of September and a little bit early here in October. But the linear improvement is certainly not there, but the directional improvement would seem to indicate that we may be hitting some stability relative to what we saw in either June or August.
Our next question comes to us from Nate Svensson from Deutsche Bank.
Thank you for the question. I wanted to ask about the payout to account. Last quarter during the Q&A, you mentioned a slowdown in growth there, but it seems that in the third quarter, principal was up 40% and now represents 50% of the digital business. This might be due to the Middle East partnerships, but I was hoping you could explain some of the drivers behind this improvement and share your thoughts on how sustainable you believe the trajectory for account impact could be.
I don't remember making that comment last quarter. We've seen very consistent 30%-plus growth rates for going on two, three years now for account payout. So we see it everywhere. We're seeing strong growth in our retail business to be digitally funded. We've seen growth there with our rolling out more digital acceptance or card acceptance in Europe and North America. We've seen growth in account payout from retail. We've seen great account payout from our digital business as well as the new partnerships in the Middle East. So don't remember the comment from last quarter, but there was not a dip last quarter. There has been a modest acceleration this quarter, but I would argue it's modest, and the new partnerships have driven that because they're a largely account payout or digitally funded relationship.
Nate, I think we believe that this is a secular change in customer behavior. And again, whether it's originated in a retail transaction or a digital transaction, the received customers are rapidly entering the banking or digital wallet infrastructure in their countries. And we've seen that, whether that's in the Philippines or Malaysia, now even to a certain extent in Mexico, where the receiver preference is to receive the money in a more digital form. We think that has implications over time for us in terms of our payout network and our ability to create efficiency and streamlining some of our retail payout network. The shift also in payout costs will become margin beneficial to us as payout to account has a different economic profile than payout to cash in many regions around the world.
Our next question comes to us from Cris Kennedy from William Blair.
Can you just talk a little bit more about the 500,000 digital wallet users? What kind of engagement are you seeing or retention trends? Or anything you could talk about that?
Cris, we are on a journey. We launched our first digital wallet in the third quarter of 2022. Over the past three years, we’ve refined the platform, the value proposition, and to some degree, the type of customers we are attracting. The customers we are currently acquiring are primarily from the receive markets. As I mentioned in the prepared comments, in countries like Argentina, Brazil, Romania, and even the U.S., people are loading money into their wallets from inbound remittances and using it for daily expenses through our cards or systems like the pickup in Brazil. This trend is growing for us. Our most engaged customers are those in our receive markets who are using the product as an alternative to receiving cash at one of our retail locations.
Our next question comes to us from Jamie Friedman from Susquehanna.
I wanted to inquire about the possibility of applying some of the successful strategies you've implemented in Europe, as the European orders seem to be performing very well for you. Devin, you mentioned some similarities or differences between the European and U.S. markets, such as the independent agent network. To what degree are there synergies between these markets, and how can you leverage the success you're experiencing there in the U.S.?
Thank you for the question, Jamie. We will discuss this in detail during our Investor Day. Our European go-to-market model consists of three main parts. First, there's the distribution structure. Second, our sales team organization and support model for agents. Third, we have our strategic pricing capability, which involves daily monitoring of market prices in specific locations to offer the best options while maintaining margin discipline. These components vary somewhat in the U.S. One reason for the Intermex acquisition was that we previously had a larger base of significant accounts in the U.S., such as Kroger, Publix, and Walmart, where we faced fewer opportunities to influence outcomes compared to the independent agent channel. By integrating Intermex, we significantly enhance the distribution middle tier with a strong independent agent channel. In Europe, we have around 300 to 400 company-owned stores, which are six to eight times more productive than the average agent, although they play a smaller role in our strategy.
After the Intermex acquisition and other initiatives, we expect to increase our U.S. company-owned stores from three to nearly two hundred. We're actively working on getting the distribution right. For strategic pricing, we are establishing it in three metro markets, with the goal of expanding over the next year. Additionally, as we integrate Intermex, we will restructure our sales force and agent support to align more closely with our European model and Intermex's historic approach in the U.S. I anticipate we will see full implementation in the second half of 2026.
Our next question comes to us from Kartik Mehta from Northcoast.
Devin, just to understand North America a little bit better, I think you said August was a lot worse than maybe July or the second half of September. Was that a result of increased competition or just the market was really slow?
From our view, it was a market view. We didn't see any different, what I would call, competitor behavior, but we certainly did see different consumer behavior, and so again, we don't have complete transparency, but the Bank of Mexico data would also support some of that as well where June was probably the worst. July improved moderately significantly, and then August reverted back to a double-digit decline. So I can't explain it. I can just tell you what we observed.
And just to build on Devin's point there, just to give you some external data. Bank of Mexico had a low point for the year of down 18%. July got down 13% down 17%, then down 12%, and improved from there. So it's bounced around as time has passed on a transaction basis.
Our next question comes to us from Zachary Gunn from FT Partners.
I wanted to ask about consumer services and apologize if I missed this, but what was the contribution from euro changes? I know you mentioned that consumer services still grew double digits organically. With that in mind, I appreciate the comments on the fourth quarter and some of the headwinds in consumer services. How should we think about the sustainability of that growth moving forward?
Zach, pleasure to meet you. I said in the prepared remarks that the Eurochange acquisition contributed roughly nearly half of the overall CS growth this quarter. So that's the simple answer to your first part of your question. And then to your second part about how sustainable is consumer services in the long run. We've now had three, four years of 10% plus growth in that business, how we've gotten there has varied from year-to-year, but we've got lots of new products that we've launched that are starting to scale. We've got some that are doing very well already, and there's new ideas we're working on. So we think there's a long runway to continue to grow consumer service for the foreseeable future, and we'll do a really good long deep dive on that in two weeks.
Our final question will come to us from Gus Gala from Monness, Crespi, Hardt & Co. Please ask your question.
I wanted to ask about the strategy to the U.S. from Europe. As we think about that, I mean, is your fleet in Europe a little bit more focused on smaller retail format versus a large retail format in U.S., and then just by thinking about how cities are set up in Europe versus the U.S., what are kind of some of the differences as changes that you're having in terms of trying to approach in retail?
Yes Gus, that's a great question. The European model differs somewhat from the U.S. model, but there are similarities. In Europe, there is a significant independent agent network, where Western Union has a strong presence, unlike in the U.S., where our involvement in the independent agent channel has mainly been through our Vigo brand, with less focus on our Western Union brand. While the U.S. has a substantial independent channel, we've had less presence compared to competitors like Ria or Intermex, which presents an opportunity with Intermex. In the U.S., we also have important strategic accounts such as Walgreens, Kroger, and Walmart, which are not as prevalent in Europe. In Europe, we rely more on significant postal systems such as the U.K. Post, the Spanish Post, and La Banque Postale in France for distribution. This model provides widespread but lower productivity compared to grocery or convenience retailers in the U.S. We believe there’s a significant opportunity to adopt more of the independent agent model, and we are pursuing this on a city-by-city basis in three major metropolitan areas in the U.S. However, this implementation will take time since it involves covering 50 or 60 areas in the U.S., while in Europe, it's typically just three or four to reach most of the market. We see potential for growth and are optimistic about the Intermex acquisition, which we believe will help accelerate this model, whether in Europe or the U.S. Thank you, everyone.
Thank you for joining the Western Union Third Quarter 2025 Results Conference Call. We hope you have a great day.