The Western Union's (WU) CEO Hikmet Ersek on Q2 2015 Results - Earnings Call Transcript

The Western Union Co. (NYSE:WU) Q2 2015 Earnings Conference Call July 30, 2015 4:30 PM ET

Executives

Michael Salop - Senior Vice President of Investor Relations

Hikmet Ersek - President and Chief Executive Officer

Rajesh Agrawal - Executive Vice President and Chief Financial Officer

Analysts

Bryan Keane - Deutsche Bank

Tien-tsin Huang - JPMorgan

Smitty Srethapramote - Morgan Stanley

James Schneider - Goldman Sachs

Darrin Peller - Barclays

Sara Gubins - Bank of America Merrill Lynch

Tim Lilly - Wells Fargo

Ashwin Shirvaikar - Citi

Jason Kupferberg - Jefferies

Kevin Macquarrie - Macquarrie

Alex Veytsman - Monness, Crespi

Matthew O'Neill - Autonomous

Operator

Good afternoon, and welcome to The Western Union Second Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mike Salop, Senior Vice President of Investor Relations. Please go ahead.

Michael Salop

Thank you, Laura. On today's call Hikmet Ersek, Western Union's President and Chief Executive Officer; and Raj Agrawal, Executive Vice President and Chief Financial Officer will discuss the company's second quarter results, 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.

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 2014 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 on our website, westernunion.com, under the Investor Relations section.

All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay noted in our press release, Western Union has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call.

I would now like to turn the call over to Hikmet Ersek.

A - Hikmet Ersek

Thank you, Mike, and good afternoon, everyone. I'm pleased with our operating performance as we posted another quarter of solid results with improved constant currency strength across all of our business segments. Excluding the one-time charge, profit margins expanded 90 basis points compared to the prior year. And we continued to return significant funds to shareholders through both share repurchases and dividends. While economic currency and geopolitical challenges remain in many parts of the world, we are pleased with our performance and business trends. As a result, we have raised our full-year outlook for adjusted earnings per share and constant currency revenue growth.

In the quarter, consumer money transfer was led by a healthy U.S. outbound business and good transactions growth in markets such as Germany and UK, which offset continued challenges in Russia and some African countries. Westernunion.com again delivered strong growth in the quarter not only in the U.S., but across most of the countries where we have transaction sites.

Customers using online or mobile to send money to bank accounts are providing incremental business. Improvements in mobile access such as with our new UK app are also producing results. Our consumer money transfer pricing has been stable as the net pricing investment for both the second quarter and the first half of the year was minimum.

Western Union Business Solutions delivered its fourth consecutive quarter of accelerating revenue growth as we continue to focus on our strategy of providing specialized products and services. Consumer bill payments also provided strong growth with good performance from both our Argentina walk-in business and U.S. electronic bill pay.

Now before I turn to call over to Raj for the financial results, I would like to take few minutes to discuss the industry landscape and our strategic focus. As I have stated in the past, our vision is to be recognized leader in cross-border constant currency money transfer for consumers and businesses.

For the consumer money transfer market, we expect digital-initiated transaction will be fast growing over the next several years, and we also believe retail-initiated transaction will continue to provide a steady business and remain a very sizable portion of the market.

As you know, cross-border money transfer has different dynamics within the different countries and customer segments. On the receive side, we believe cash will remain critical in much of the world for the foreseeable future. At the same time, the account side of the receive market represents incremental opportunities.

Western Union has great global assets to leverage. We have a strong brand which stands for trust and reliability with our customers. We already have regulatory and compliance programs that allow us to operate in more than 200 countries and territories. We have an extensive funds-in and funds-out network the connects over 0.5 million diverse retail agent locations, ATMs, and kiosks, our own and third-party digital sites and mobile wallets.

We are adding direct access to millions of paying accounts, and our network also gives us the ability to offer tailored cross-border B2B, B2C, C2B solutions. We have a cross-border platform that provides the technology, foreign exchange conversion and settlement, regulatory and compliance infrastructure and data management that brings our network together. This platform allows an effective and timely money movement for multiple used cases almost anywhere in the world.

We are building on this strength to expand our network even further and open it to new types of players. Today, we are very well positioned as we have been heavily investing in our digital, compliance, and IT capabilities, for the last few years. And we continue to enhance our platform. Just in the first half of the year, we announced new agreements with MTN for mobile money transfer in Rwanda and in the Ivory Coast. New connections to the ATMs in Poland, new self-service kiosks in with WHSmith in the UK and new card and ATM based services through MasterCard at Banca Transylvania in Romania. Western Union Business Solutions formed a mass payment alliance with Hyperwallet, and signed agreements with Tower Watson for cross border payroll, and with North Western University for education payments.

We also entered other new Asian relationships such as with the Bank of China and Sainsbury's Bank, UK's first supermarket bank. And we renewed several other agents around the world, including the expansion of our long-standing relationship with Kroger here in the U.S. earlier this month. Our digital business is already strong with approximately $250 million in revenues last year and strong growth again this year.

We now have online sites in 29 markets to send money around the world, and we plan to leverage our brands, global presence and regulate the relationships to add even more markets over the next couple of years. We are opening a digital hub in Asia that will help us move faster to establish and develop online and mobile business across the Middle East, Africa, Asia the CIS and other international markets. While we have already an established retail payout, we will continue to add to the more than 50 countries where we can now deposit funds into banks and mobile accounts.

From this foundation, we believe, we are very competitive. And we offer a strong proposition that is difficult for others to replicate on a global scale. The payment base is clearly seeing some exciting developments. At Western Union, we are focused on innovation and new technology. And we are fortunate to already have a strong core asset that support global money movement. So I hope I was able to give you some brief insight into Western Union Brazilian global business model, our competitive strength and our future strategy.

Now coming back to the second quarter results, once again we are pleased with the performance and improved revenue trend and with the raised outlook for the year.

Now I will turn the call over to Raj to provide you a more detailed review of the quarter.

A - Rajesh Agrawal

Thank you, Hikmet. Second quarter revenue of $1.4 billion was down 2% compared to the prior year period during - due to the strength of the U.S. dollar but revenue on a constant currency basis increased 4%. The impact of currency translation net of hedge benefits reduced second quarter revenue by approximately $85 million compared to the prior year period. In the consumer to consumer segment, reported revenue decreased 3% but increased 3% constant currency. Transactions also grew 3% in the quarter.

B2C cross border principal declined 5% or increased 2% constant currency. Principal for transaction was down 7% compared to the prior year period, primarily due to foreign exchange translation as the decline was only 1% in constant currency terms. The spread between the C2C transaction growth and the revenue decline in the quarter was approximately six percentage points. The differential was due to a negative 6% impact in currency. Both net pricing and mix impacts were minimal in the quarter. We did implement some price reductions in the high principal band of our U.S. domestic money transfer business in early April. These were implemented in certain parts of the country where we were seeing competitive impact. While it would take several quarters to fully judge the results, we are seeing improved transaction trends in the price stand, which contributed to a 4% in [indiscernible transactions in the quarter.

Turning to the regions. Due to the significant fluctuations in foreign exchange rates compared to last year, as I've discussed individual country contributions to the regional result, I will be referring to constant currency movements.

In Europe and CIS region, revenue declined 9% or increased 2% constant currency while transactions increased 1%. Germany and the UK delivered good revenue growth in the quarter, which partially offset by continued declines in Russia. I also want to give you a quick update on Greece. The money transfer industry was affected by the government mandated bank holiday implemented in late June and money transfer transactions were not allowed, midway through July, some inbound business was reopened with limitations on withdrawal. We are very pleased that starting this week, we've been able to reopen our services in many agent locations without limitations on inbound transfers, so our valued customers in Greece are now able to receive much needed funds. For reference, Greece represents just under 1% of company revenues last year, and prior to the current crisis, the business was split 50/50 between inbound and outbound.

North America revenue declined 2% or 1% on a constant currency basis while transactions increased 3%. The U.S. outbound growth was strong in the quarter, driven primarily by spends to Latin America and Mexico. Our Mexico business continued to grow faster than the market based on the latest Banco de Mexico data that the first two months of the quarter. Total domestic money transfer revenue declined 4% while transactions increased 4%, an improvement from the first quarter's 2% transaction growth. In the Middle and Africa region, revenue declined 4% or increased 1% constant currency and transactions reflect. The region benefited from growth in the United Arab Emirates, Saudi Arabia and the Nigeria outbound business, which was partially offset by continued geopolitical driven weakness in Angola and Libya. In Asia Pacific revenue was down 5% or flat constant currency. Transactions in the region declined 3%.

Revenue in the Latin America and Caribbean region increased 6% from the prior year quarter or 13% constant currency, while transactions increased 7%. Strong inbound business from the U.S. as well as outbound strength from Argentina drove the growth in the region.

Westernunion.com C2C revenue grew 22% in the quarter or 28% constant currency. Westernunion.com transactions increased 27%. U.S. originated online transactions grew 33% and the U.S. outbound quarters were even stronger. Electronics channels revenue which includes WU.com account-based money transfer through banks and mobile money transfer increased 19% in the quarter and represented 7% of total company revenue.

In the Consumer-to-Consumer business segment, revenue increased 8% or 12% on a constant currency basis driven by strong growth in the Argentina walk-in and U.S. electronic businesses, which is partially offset by declines in U.S. cash walk-in. Business Solutions, reported a revenue decline of 1% or an increase of 9% constant currency.

Revenue growth was driven by Europe and led by strong sales of hedging products. As we discussed margins and earnings per share, unless otherwise noted, my comments would exclude the impact of the settlement agreement reached between our Paymap business which is part of the Consumer-to-Business segment and the Consumer Financial Protection Bureau. During - due to this agreement, we have accrued $35.3 million in the course results claims regarding the marketing or Paymap equity accelerated service after tax, the impact was $24.2 million or $0.05 per share. The consolidated operating profit margin excluding the charge was 20.7% in the second quarter compared to 19.8% in the prior year period.

The operating margin improvement was primarily due to cost savings initiatives and the net impact of foreign currency movements which are partially offset by increases in incentive compensation, compliance, and technology expense. While the overall impacted currency translation negatively impacted revenue and profitability in the quarter, the operating margin percentage benefited from hedge gains as profit was proportionately less impacted by currency than revenues.

In the quarter, we recorded approximately $20 million of hedge in our revenue line and these also flow through to the operating profit. Excluding all impacts of currency, operating margin still improved compared to the year-ago period. Approximately $9 million of incremental savings were identified in the second quarter from cost savings initiatives. We continue to expect approximately $15 million to $20 million of savings this year from programs implemented in the fourth quarter of 2014, and another $10 million to $15 million of incremental savings from the 2013 programs.

Compliance expense was approximately 3.7% of revenue in the quarter, compared to 3.2% in the prior year period and we still expect the range of 3.5% to 4% for the full year. Adjusted EBITDA margin was 25.2% in the quarter compared to 24.7% in the prior year period. While our tax rate of 11.8% was down from 16.5% in the prior year. Including the impact of settlement charges, the reported tax rate was 3.5%.

Adjusted earnings per share are $0.41, increased 14% from $0.36 in the prior year period, driven by the operating margin expansion, a lower effective tax rate, and your shares outstanding. GAAP earnings per share which includes the settlement was $0.36. The C2C operating margin was 23.3%, compared to 22.7% in the prior-year period. The C2C margin benefited from cost savings initiatives and the net impact of foreign exchange, partially offset by increased compliance and incentive compensation costs. The consumer to business operating margin was 18.3% in the quarter, excluding a settlement charge, compared to 16.2% in the prior-year period. The margin increase was driven by higher revenue and cost savings initiatives.

Business Solutions reported breakeven profit for the quarter, compared to a loss of $3 million for the same period last year. The improvement in operating profit for Business Solutions in the quarter was primarily due to lower amortization expense. Depreciation and amortization was approximately $12 million in the quarter compared to $15 million in the prior year period.

Turning to our cash flow and balance sheet, cash flow from operating activities was $466 million year-to-date through June. Capital expenditures were $78 million for the second quarter. At the end of the quarter, the company had debt of $3.7 billion, and cash of $1.6 billion. Approximately 40% of the cash was held by United States entities. During the quarter, we repurchased approximately 7 million shares for a total of $156 million. Our remaining authorizations of $906 million expires in December 2017.

We also paid $79 million in dividend in the quarter. And at quarter end, we had 512 million shares outstanding. Based on the results for the first-half and our forecast for the remainder of the year, we are raising our full year outlooks for adjusted earnings per share and constant currency revenue growth. We now expect, low to mid-single digit constant currency revenue growth for the year, compared to low-single digit growth in our previous outlook.

Our operating margin outlook remains at approximately 21% excluding the Paymap settlement or approximately 20% including the charge. We continue to expect the adjusted tax rate to be approximately 13% although the GAAP rate is now projected at approximately 12%. We've raised the adjusted earnings per share outlook by $0.02 to a range of $1.60 to $1.67. On a GAAP basis, the range would be $0.05 lower. We are pleased with the second quarter results including good revenue trends and cost management and are confident in the outlook for the remainder of the year.

Operator, we are now ready to open the line for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Bryan Keane of Deutsche Bank.

Bryan Keane

Hi, guys. Just wondering of your big picture question, Hikmet, lots of M&A activity in this space - remittance space. It seems like Western Union is kind of wants to stay away from making any acquisitions of any size, of any materials. So could you maybe just give us some thoughts on acquisition strategy and kind of your thoughts Western Union kind of doing this on a standalone basis?

Hikmet Ersek

Great question, Bryan. First of all, we're very pleased with our performance, obviously we are really executing on the markets. Again another quarter, solid quarter, and I believe also our digital strategy and our portfolio expansion is working, core business delivering. And that's great. Build on that strength, we are always looking for acquisition opportunities to enhance our cross-border money movement capabilities our platform and also expanding our portfolio, we're always looking at that, but we've been - we are pleased with our, we're focused on our performance, we are pleased with our performance. If you look at acquisition, we'd need to have a strong cash-on-cash returns, and we believe also the acquisition candidate should be really has to fit within our strategy, has to really help to us to execute good in the market and long-term has to benefit for us. So, we're always looking at the acquisition possible, it is but, it has to fit, and we're going to continue to execute with our business.

Bryan Keane

But it doesn't seem like anything eminent or there are bunch of big deals that are close to looking at?

Hikmet Ersek

We're really looking always, all possibilities, but, we're very much focused on as you know the company policy, we don't make any comments on the acquisitions. And so, I think we are very much focused on the, our execution.

Bryan Keane

Okay. And then just Raj, obviously volatility in FX is playing a role. Can you just may be help us understand how that's influencing the model kind of the puts and takes for the both revenue and margin.

Rajesh Agrawal

I'm sure, Bryan, the volatility itself has more of a direct impact, in our B2B business, we see that impact the business in the short-term , long-term results in the B2B business are really driven overall market growth and the things that we're executing upon. From a volatility standpoint, for the consumer business, there's not much of an impact, we have seen some additional movement there in certain markets like the U.S. and the UK to India or the U.S. to Mexico as those currencies have moved. But nothing dramatic on the consumer side of the equation. Just generally, our trends have been improving. We've seen good U.S. hop on fund trends, we've seen good performance in parts of Europe, although with challenges in Russia obviously. But even in the Middle East, we've seen good performance with the UAE and Saudi Arabia, and even in Nigeria, our hop on business is there.

So, pockets of strength around the world, not necessarily driven by currency volatility, really just by good performance in those particular geographies.

Bryan Keane

Okay, helpful. Thanks so much.

Operator

The next question comes from Tien-tsin Huang of JPMorgan.

Tien-tsin Huang

Hi, great. Thanks, good quarter here. Just building on Bryan's question, on just on hedge gains then. I guess, $36 million year-to-date, what's sort of the second half outlook on the hedge gain front if rates hold there?

Rajesh Agrawal

Sure. Tien-tsin, this is Raj. We still expect to achieve about $70 million in hedge gains for the year. $16 million in the first quarter as you know, and then $20 million in the second quarter, and then still $70 million, and that's assuming that rates stay roughly where they are today. We had assumed about a $1.10 coming into the year for the euro and that's roughly where the rate has been.

Tien-tsin Huang

All right. Terrific. Just wanted to check there. Just I guess back to the business on the pricing front, good to hear everything is holding stable. What sort of the outlook for the year specifically I guess for the second half you had some price actions, embedded in the outlook, do you have that lead or ready to pull or does it feel like we're more of in a stable environment here?

Rajesh Agrawal

Well, generally as you know, Tien-tsin our business, we do a pricing actions as we did it also in the U.S. corridor. But we do it corridor-by-corridor, selective pricing actions. I believe that the business is quite stable, we are wining, we're quite competitive. The people really trust our brand, trust our network, trust our capabilities on the multi settlement and everything. Our platform is really working pretty well, within that environment, we feel currently quite stable on the pricing investment. So, I think we're going to continue to do corridor by corridor and area by area pricing investment as we did in past always, but I don't feel that for this year we're going to do big pricing investments.

Tien-tsin Huang

All right. That was great. Great quarter, thanks.

Rajesh Agrawal

Thanks

Hikmet Ersek

Thanks, Tien-tsin.

Operator

And the next question comes from Smitty Srethapramote of Morgan Stanley.

Smitty Srethapramote

Great, thank you. So this was the first quarter where I think I've noticed that constant currency revenue growth in WU.com was higher than transaction growth. Can you talk just talk about that this, I guess this development? Are you guys falling back on promotions and what kind of growth rates should we be expecting WU.com in the going forward [indiscernible].

Rajesh Agrawal

Hi, Smitty. This is Raj. We are very pleased with the growth that we've gotten in the WU.com business and the strategies that we've put in place that are really starting to work for us. The business has really been focused on expanding geographically and you see that in 29 markets now. We are also improving upon the customer experience by adding more features and functionality to our platforms and ultimately getting more conversion of customers, and we're also expanding channel capabilities. So more bank funding, more bank payout. We also have mobile capability in the U.S., UK, and Australia. So all of those things put together are really helping to drive good revenue growth. Having said that we continue to look at opportunities to do price promotions that's an ongoing activity that we have, and - but you're seeing those two things tighten a little bit. We're pleased with the 27% transaction because that just gives you an indicator of how healthy the business is. And I would say our principal growth has been even far above our revenue growth. So we're gaining share in that part of the market and we feel really good about where that business is headed.

Hikmet Ersek

I think also to add on that our mobile strategy is working pretty well there. We're going to expand that mobile strategy also to the other countries. And one thing also you heard that me saying that, we're going to open an digital hub in Asia. We want to go to new countries also with that one. And basically we are going to use our existing business model, which we create in San Francisco, which we've been so very successful. And really taking that and opening new countries to expand our digital. And the trick is obviously combining digital and with retail payout different dynamics. Our omnichannel strategy is working. So I am pleased with that also.

Smitty Srethapramote

Great. Thank you for that. And maybe just a follow-up question. Just wondering what kind of reactions you have to the proposed PayPal to combination?

Hikmet Ersek

Well, I can't make a comment on PayPal or nor Xoom obviously. But I think that we are pretty much, we our business, our visual business is really pretty good as I mentioned earlier. But I think we are going to concentrate. I'm going to expand our digital business. It has a very strong growth. We are also with our platform. We are looking also at different customer segments, different players, which joining an example is, one of the examples which is growing very well is our financial institutions web pages like Scotiabank or like Swiss Post bank. They are using our platform to send money worldwide. So it's bank [indiscernible] standard on their webpage using Western Union, dropping money to 200 countries. That's the platform strength we have it. I think we're going to concentrate on that. So this platform is, it didn't happen to us yesterday, right? We build at over years, it's very strong, and it is - you have to - it's a really competitive advantage and the cash payout is extremely important in different parts of the world, as you know, and that's definitely we feel quite competitive to be successful in the market.

Smitty Srethapramote

Okay. Thank you.

Hikmet Ersek

Thank you, Smitty.

Operator

And our next question is from James Schneider from Goldman Sachs.

James Schneider

Thanks for taking my question. As more you if you can follow up on the previous one, if in fact PayPal does expand the zoom offering into more markets than the U.S. outbound. Can you maybe talk about what's required in your online business to drive kind of more marketing dollars and what the historic relationship you've seen, is between our marketing dollars spent in the given geography for online channels versus transactions?

Hikmet Ersek

Jim, you will understand that I'll keep that in a general comment, I won't keep it my secrets - company secrets away. But to build up online business is not that easier and propping money there is not easy. You need some countries of bank licenses, you need to compliance requirements, you need to register customer, know your customer, know your age on the receive side. It's a quite complex part which we have been doing that for many years and very successful.

What happens is that, it's not only in the send side, you also have to understand the dynamics on the receive side of the customer behavior, customer segmentation on the receive side. And what we do with our platform, as you saw in my - one of my charts, I explained it. Western Union has a diverse payout options - and because it's a choice of the consumers how they want to pick up the money, and how we want to send that. That's the biggest advantage we build over the years, and we're going to concentrate on that, on the send side maybe particularly answering that questions, you're going to concentrate on the royalty programs, on the corridor-by-corridor actions. Is it a promotions, Mother's Day promotions or is it a Christmas promotion or is in the ethnic marketing, you'll continue to be very, very focused. So, I believe that, we are very well positioned here.

James Schneider

That's helpful. Thanks. And then maybe a follow-up for Raj. On the compliance spending, 3.7% in the quarter. What's the visibility outlook into the back-half of the year? Do you think, there is an opportunity to sort of bring that down or do you think that kind of stays at the same level or even at higher level and can you maybe talk about some of the programs that are new, that are ongoing there?

Rajesh Agrawal

Sure, Jim. We still believe that our spending this year will be in that 3.5% to 4% range, I don't have a tighter range to give you the than that. In any given quarter, the level of spending is going to vary depending on what activities we actually have going on. We're - I do believe that, we're in a more stable place this year than we have been historically on - in terms of the level of compliance spending.

What you're really seeing coming through in the higher spend this year is all of the people that we've hired, we have over 2,000 employees in the compliance organization which is helping to strengthen our compliance capabilities, but that is adding cost to the equation issue, and that's really the step up that you're seeing. At the same time, we're also trying to optimize our spend. We're spending money in technology, we're trying to automate processes, automate activities wherever we can.

And that's something that will make us more efficient over time. But we still are in the right range for the year of 3.5% to 4%.

Hikmet Ersek

Raj, I think, we're going to continue to enroll compliance programs worldwide. There will be investments, continued investments, that's also I see as an investment, because it's really a competitive, it's starting to be a competitive advantage in some countries. And the more your customer know your agent programs, it will be expanded into several countries over the coming years. To protect our customers, to protect the company, to work with the regulators to - and this is a complex business money transfer business, and within that environment, we're going to continue to invest.

James Schneider

Thank you.

Hikmet Ersek

Thanks, Jim.

Operator

The next question is from Darrin Parrell - Darrin Peller, I'm sorry of Barclays.

Darrin Peller

Thanks, guys. My just first question on pricing again, I mean again it came up before, but good to see stability there, just Hikmet, a big picture, not necessarily this year, but used to be something that you guys would guide towards being a 1 to - maybe 1 point to 3 point pressure per year, in terms of just expected headwinds on the revenue side. We obviously haven't seen that for the last couple of quarters. Do you really think that continues or comes back in a couple of years, is the environment competitively going to cause that or is it a little bit of a better competitive landscape now?

Hikmet Ersek

Darrin, as you know I'm not going to give guidance for - longer guidance, but I see where we are today and you could look also the last quarters, we've been very competitive within that environment with our pricing. Darrin, as you know that doesn't mean that we're not going to do pricing, right. So, I mean we're going to really focus quarter-by-quarter. As you recall in 2012, we had one correction about our product reposition and pricing reposition, a bigger one.

Darrin Peller

Yes.

Hikmet Ersek

But since then as we said that come back, transactions and revenue will come back, and that happens. And if you do also quarter based pricing or area pricing, it takes about 18 months or something like that, the revenues also come back, you would see sudden - suddenly the transactions are coming back on the quarter-by-quarter, but we've been doing that for many years, and I believe that given our global reach, we can really do that quarter-by-quarter pricing investment. I feel comfortable where we are today.

Darrin Peller

Okay. All right, then just a quick question for Raj on the tax rate. I think you came in at 11.8% adjusted for the settlement. And so I just I think you had guided initially to a 13% tax rate for the year with it first half is coming in, I think about 100 basis points better than that. I guess first question is just should we still expect that for the year and then why would it increase in the second half? And then going forward, I mean is your normal tax rate still 15%.

Rajesh Agrawal

Yes. You should still plan for about 13% adjusted for the year. There is just some geographic and business mix assumptions that we have in the full year outlook for the tax rate. So that's approximately what we expect for the year. And on a longer-term basis, assuming no other tax law changes, which is something you can't really predict and we would expect in the normal year to be in the mid-teens range.

Darrin Peller

Okay, guys. All right. Nice job. Thanks.

Rajesh Agrawal

Thanks, Darrin.

Operator

And next we have a question from Sara Gubins of Bank of America Merrill Lynch.

Sara Gubins

Hi, thanks. Good afternoon.

Rajesh Agrawal

Hi, Sara.

Sara Gubins

On pricing, you did lower pricing to some extent in the high principal bands in the U.S. I know it's on a selective basis. Was the impact of that just so small that it doesn't show up when we look at the overall pricing impact? Or are there some regions where pricing is coming up?

Rajesh Agrawal

Yeah, Sara. This is Raj. We did do some price increases and decreases around the world. And that's why you see the net impact being 0% pricing for the year quarter and actually for the first half of the year. And as we've always said, we look at pricing opportunities all over the world. And how - what it takes to be competitive in certain geographies and so that can go up or down direction. So that's really why you have 0% pricing?

Hikmet Ersek

Just to add on this, Sara, you're right. We did some pricing investment [indiscernible] selected locations where we feel that we did that. I think [indiscernible] and car transit team did a good job to selecting the locations to very minimal pricing investment. So, we feel quite competitive and in the lower bands and also general and the U.S. domestic money transfer and U.S. outbound, and U.S. origin, the digital money transfer is doing fantastic actually. The team is doing a good job to respond to the market need. So I feel generally that we are, our pricings are stable and good for this year.

Sara Gubins

Great. And then a question on Europe. Transaction growth came down, when we look at year-over-year transaction growth, it came down about 300 basis points versus last quarter. You mentioned strength in Germany and U.K., and of course weakness in Russia offsetting that. But did anything change sequentially from the first quarter that might explain the weaker transaction growth?

Hikmet Ersek

Yeah, Sara, the transaction growth was largely impacted by a declines in Russia. But if you look at the revenue growth, that's very consistent with the first quarter. We still had 2% constant currency revenue growth in both the first quarter and second quarter, and the transaction growth, because of the declines in the Russian business, which is at a relatively lower revenue per transaction in the rest of Europe. That's why you see the mix change happening there. So that's more of an impact on transaction growth and really not much impact on the revenue growth.

Sara Gubins

Great. Thank you.

Hikmet Ersek

Thanks Sara.

Operator

And next we have a question from Tim Lilly of Wells Fargo.

Tim Lilly

Hi, thanks. Good afternoon.

Hikmet Ersek

Hi Tim.

Tim Lilly

Just had a question on the consumer business and the B2B, that consumer business growth rate of 12 constant currency is pretty strong. I guess I just want to make sure there is nothing with the U.S. transitory in the quarter that, it's not indicative of their underlying business sort of, should we think about that's really sort of the trajectory the growth rate is for the consumer to business right now.

Hikmet Ersek

Yeah. Tim, that's slightly more than the first quarter, but it's pretty consistent. In the first quarter, the business grew at 11%. So nothing unusual there. We've had good performance in our Argentina business and also in our electronic payments business here in the U.S. And those are the two key growth drivers and then cash. Walk-in business here in the U.S. declined as it has in the last few quarters. So nothing really has changed in terms of overall trend there.

Tim Lilly

Okay. And then my second question I guess sort of that ties into the whole enterprise. But obviously the transaction growth rates and the revenue and the consumer to consumer are what they are in that low single digit give or take. A lot of people talking about pricing, but you got these two other businesses of the B2B and the C2B that are growing faster than the consumer. So I guess my question with that as a backdrop is if you can maintain transaction growth and the consumer to consumer where it's at. And there's not any kind of real degradation. Does that alleviate your concern or your willingness to cut prices, but actually focus more on the other two businesses to sort of pick up the slack? Or do you feel like if you can't reaccelerate the transaction growth in the consumer, it's somewhere, pricing would have to occur again like we did a couple of years ago.

Hikmet Ersek

Yeah. I think I got your question. Let me try to answer it. So first of all if you compare our retail money transfer business is a big part of that. That's a different base than on our digital business and the business solutions. The growth rates are - they are different bases, right. One is a huge billion dollars of business. The others are known last year this will be $250 million. But, it's very strong growth, and it helps to grow the company. So, as I said in my opening comments also, we believe that, retail money transfer business continue to, retail instant, continue to be stable, and will have a lower growth rate than the digital business, which is going to be very strong growth rate, but that will, it's a different base, and it's a different customer segment.

One good thing is also that, the digital business consumers are new to Western Union. These are new customers, we're adding. We wouldn't be so successful, if we - in digital business, if we wouldn't have that retail payout network worldwide. The connection between digital and cash payout it's really the one of the strongest growth rates, we have it globally, than the combination of omnichannel makes is successful.

Saying that, on the digital-to-digital, it's -that's a different customer segment. We do that also if we do have a good growth rate, digital to bank accounts payout. But, generally I would say that, with the different customer segment, we have a good price positioning, to go after them. So, I don't see the big pricing investment to catch up there or to change the environment. I think, I feel comfortable with our omnichannel strategy with customer segment base pricing, promotions works pretty well, to go to the market.

Tim Lilly

Okay. Thanks, that's very helpful. Thank you.

Hikmet Ersek

Thanks, Tim.

Operator

Our next question comes from Ashwin Shirvaikar of Citi.

Ashwin Shirvaikar

Hi, Hikmet, hi Raj, and how are you guys?

Hikmet Ersek

Hi Ashwin, how are you?

Ashwin Shirvaikar

Good, thanks. I had one question on the FX line in the C2C segment. Last quarter, you had mentioned there is some rebalancing between fees and FX. But, when I look at it in FX as a percent of C2C revenues is now up to over 24% of revenues, 18 months ago, it was less than 22%. I'm kind of wondering how sustainable is this. Do you pay commission on FX? And the pricing calculation, does that include this or not?

Hikmet Ersek

Yeah. Ashwin, if you recall in the first quarter we began some and we did some rebalancing between CCs and foreign exchange. So we shifted some pricing in certain parts of our business from CCs to foreign exchange. No, overall impact to consumer pricing and no real impact on our revenue line. So it's been - you're going to see that impact throughout this course of this year until it anniversaries into next year. But that was just to realign with the market pricing and why we did the rebalancing.

Ashwin Shirvaikar

But on the FX component, do you pay commission to your agents? I mean what's the contribution margin of FX versus transaction? Just curious.

Michael Salop

Yeah. Hi, Ashwin. This is Mike. To answer your first question. It is included in our pricing numbers. So the changes in the FX price is part of the pricing calculation as well. It depends on the country. In some countries, we pay commissions on the FX, in other countries we don't. So it just depends on which corridors we are talking about.

Ashwin Shirvaikar

Okay. And sort of a broader question. You guys have had a very stable call it 3% transaction growth in North America now for many quarters. Is this a looking at sort of a late [indiscernible] business. Is this the right level of transaction growth for our modeling purposes or can you accelerate it, or is it sort of the stable network?

Michael Salop

In the U.S. market, it has been pretty consistent transaction growth. This year it's really about the economic conditions that we see. We've seen continued good growth in the U.S. market. U.S. outbound LACA has continued to stay strong. U.S. to Mexico has also been very strong for us. And we have our TMT business that we just saw some acceleration in transaction growth. So that's a component of it as well. It's hard to predict exactly where with the transaction growth will be for that business, but we're pleased with the direction that it's had in the last few quarters.

Hikmet Ersek

Yeah, I think - also all the promotion actions and all the online business doing very well, especially the mobile is a big step in the U.S. I'm very pleased with the mobile penetration and the lower bands the people are really using it. And it is very convenient. It's nice you have the mobile app, you send money and somebody anywhere who lives in the 50,000 locations in the U.S. can pick up the money immediately. So that's something that we'll debt and it's also outbound business is very strong. And I think that it's a good market.

Ashwin Shirvaikar

Right. So sounds like, you guys can keep it stable going forward. Okay. Great. Thank you.

Hikmet Ersek

Thanks, Ashwin.

Rajesh Agrawal

Thanks, Ashwin.

Operator

And we have Jason Kupferberg of Jefferies.

Jason Kupferberg

Hey, guys. How are you?

Hikmet Ersek

Hi, Jason. Good.

Jason Kupferberg

So on WU.com, I was curious to get a sense of what percent of the volume going through there is now paid out in cash versus being paid to an account? And where might you like to see that metric get over the next year or two? Obviously, it would be advantages if you guys can avoid some of the agent costs there?

Hikmet Ersek

Yeah. The vast majority of the business is still paid out to an agent location. However, the bank payout and the bank funding of that - of those transactions is one of the faster growing areas is still small portion of the business, but still the largest used case is to pay out in cash, and again we're trying to create this omnichannel capability where consumers have an opportunity to use this however they want, whether it's cash at a retail location, or mobile, or bank, or our online business, so however they want to transact with us, that's really what we're driving towards. So cash is still obviously a very important component of the equation, but bank payout, and bank funding are going to become more part of the mix as we move forward.

Rajesh Agrawal

Especially in the sense, it really depends on the country, it depends on the corridor, right. In countries where you send money, where the people need to pay out in cash in the corridor, it's extremely high growth rate but in the sense that there is a different use case, that people want to use online maybe sometimes credit card fund it, sometimes ACA, sometimes especially in Europe, debit cards and debit accounts funded but on the receive side, we see a huge, the agent locations advantage is huge to cash payout, but as Raj said that it's small, but we see also very fast growth rate on the bank account and mobile wallet payout, so that's something that we're also focused.

Hikmet Ersek

It's largely an incremental opportunity for us. The bank payout. We typically don't see a shift of preference there, it's really an incremental opportunity for us.

Jason Kupferberg

Yeah, that's the way it sounds. And then just a follow-up question generally on costs, I know you're still working your way through some of the cost savings from prior actions, should we think of your overall cost base is being pretty well optimized at this point, obviously you made the investments in compliance for example, and you've done a good amount of cost take out in prior years or do you still think that you can sort out some additional opportunities that might even be significant enough for you to be able to call out at some point.

Hikmet Ersek

Yeah. I mean Jason, we're always looking for opportunities to take some cost out and optimize and we, we continue to evaluate opportunities, as you said, we've done in quite a bit already. We still are looking at ways of optimizing our overall distribution cost. So we really look at the mix of that business and how that's going to drive distribution costs down over time, and that is our single biggest cost item in our cost structure as you know. And then we, the compliance has certainly become more stable, I would say this year than we've seen in the last few years, we have a better handle on it. And then in our fixed and variable cost structure, other variable costs, we're also looking at opportunities. So, certainly if there is something of significance, we would definitely call it out to you, at some point in the future.

Jason Kupferberg

Okay. That makes sense. Thanks guys.

Hikmet Ersek

Thanks Jason.

Rajesh Agrawal

Thanks Jason.

Operator

The next question comes from Kevin Macquarrie of Macquarrie.

Kevin Macquarrie

Great, thanks. I wonder if you could give us a sense, from pricing perspective. Is some of that being held by capacity coming out as a result just the cost of the compliant, being two ownership at this point for certain markets?

Hikmet Ersek

Kevin, on the compliance, we - if I understand your correct question correctly. We have compliance activities that are ongoing in nature. So we have many markets and geographies, where we're implementing programs. Even if we complete those activities,, we know that we have more regions and markets in which to go to. And so that's why we've continued to see some higher level of spending in the compliance side, and that's where we are today. But, if things don't necessarily just drop off.

Michael Salop

I think if you're referring to the industry in general, Kevin yeah, we do think costs are going up for competitors most probably playing into pricing in the industry.

Kevin Macquarrie

Yeah, with more along those lines, Mike. And then just any thoughts on Hyperwallet the JV has that been going?

Michael Salop

Yeah, it's early in the relationship. It's within our B2B business that we've entered into this relationship and it allows us to deliver mass payments around the world in an easier way. Hyperwallet has a receiver-oriented portal that ultimately requires the beneficiaries that input their information. So it makes it easier. The sender doesn't have to know every single beneficiary detail. And so instead of having to put thousands of data points into a system, you can rely on the beneficiary to actually pull the payment to wherever they want to. So it's easier for them to do mass payments. And it's applicable in the B2C space mostly and pension payments or payroll.

Hikmet Ersek

I think it's C2B strategy also - it's not only - what we do is that it's not only sender decision, it's also, should be a receiver decision, how to pullout the money, where to direct the money? And this kind of relationships helps us as we expand our receiver driven products, also to different countries. And one thing we realize that the receiver wants to also have the choice, sending money at cash or account. Or even sometimes dividing the money, half of the money to an account, half of the payout in cash. So something like that. Relationships like Hyperwallet hubs on our future [indiscernible].

Kevin Macquarrie

Great. Thank you.

Hikmet Ersek

Thanks, Kevin.

Michael Salop

Thanks, Kevin.

Operator

Our next question comes from Alex Veytsman of Monness, Crespi.

Alex Veytsman

Yes, well, guys, just wanted to ask about the C2B growth. There was strong acceleration at this quarter from the prior quarter. What were the main drivers in C2B and kind of where do you see it for the rest of the year?

Rajesh Agrawal

Yeah. The business grew 11% in the first quarter and 12% this quarter on a constant currency basis. The drivers have been the same that we've seen for the last few quarters. We had good growth in our Argentina business and we also had good growth in our electronic payments business here in the U.S. And we have a little bit of offset from the declines in our cash walk-in business in the U.S., but pretty similar components of growth as we see in the last few quarters.

Alex Veytsman

And then on the B2B side also some acceleration I think from 7% to 9%. Is it pretty much the same landscape as before?

Rajesh Agrawal

As the business continues to execute that's the fourth quarter in a row that we've had good constant currency growth acceleration. They're focusing on driving continued expansion of our hedging and risk management capabilities as well as driving growth in our integrated payments vertical. So university payments, financial institutions, NGOs, these are typically more sticky relationships. They require a little bit of more of an integrated solution and we've been quite successful and we continue to expand that into more markets.

Alex Veytsman

Great. Thank you. Thank you, Salop.

Rajesh Agrawal

Thanks, Allen.

Michael Salop

I think we have one more person in the queue. So we'll take the final question.

Operator

Your next question will come from Matthew O'Neill of Autonomous.

Matthew O’Neill

Good evening. Most of my questions have been answered. But just wanted to get an update on the [ph] 12/2015 pricing that you discussed taking in from geographies in the U.S. and any important dates there, another three months into that?

Rajesh Agrawal

So our pricing actions where we put in place in 2015 are working, and we've been seeing good response to our pricing action, but they're really corridor and corridor specific. The pricing actions we put in the U.S. is in the higher band and we see the early transaction growth, it will take some time until you need some core quarters to understand really the response on the pricing actions but we see early signs of good transaction growth, on the higher bands. Other than that, we did some - the usual pricing actions quarter-by-quarter and country-by-country, but it's not that big and the current business model is pretty much working and we are satisfied with that.

Hikmet Ersek

I mean, we didn't price very much of the higher bands. And if you recall, it was 25% of the above $200 principal band, which half of the business roughly is below $200 and half is above. And we only price 25% of the above - about $200 principal bands. So, relatively small amount of the business that was priced, and we're seeing good results as Hikmet said.

Matthew O’Neill

Great. Thank you very much.

Hikmet Ersek

Hey, thanks.

Matthew O’Neill

Thanks, everyone.

Michael Salop

Thanks, everyone. Have a good day.

Operator

The conference is now concluded. Thank you, for attending today's presentation. You may now disconnect.