Michael Brown: Yes. Those legacy payment stacks are very legacy. I mean, they’re architected 20 to 40 years ago, that makes it a challenge for banks to deal with things like wallets and QR codes and all the modern banking challenges, account-based transactions and so forth. So the need is great.
Operator: And the next question is coming from Gus Gala [ph] of Monness, Crespi, Hardt & Company.
Unidentified Analyst: Could you help me a little bit unpack the drivers of that big 60% incremental EBITDA margin this quarter in EFT — just — yes, that will be my first one. I have a follow-up.
Michael Brown: Well, okay. So the two things we mentioned before. It’s better transactions, and it’s also rationalizing nonperforming ATMs. If you think about it for a second, it cost us x amount to run this ATM every month. We’ll just make up a number, call it, $1,000. So you need enough transactions to cover that $1,000 before you get to breakeven. But every transaction after that has 90% margin attached to it. So that’s the point. Once you get your quantity up and you cover the nut of your network, then all that starts to fall to the bottom line, and that’s kind of what you’re seeing. And so that’s it. And then — so it’s more transactions plus it’s the optimization of getting rid of ATMs that are not profitable.
Unidentified Analyst: Great. I appreciate the color. And my next one is on Money Transfer. Could you talk a little bit about the evolution of digital — profitability of digital segment? I mean, is the opportunity here for further margin expansion just from continuing to drive more remittances ending in a digital receive? Does that makes sense?
Michael Brown: Yes. Okay. Well, that’s an interesting — so there’s 2 parts to it. When you say digital, it’s the send and receive. So when we pay out into cash where somebody walks up to the branch of a bank or something to pick up their money, that bank gets, call it, $3, maybe $3.50 from us to do that for us to allow that customer to walk in its doors and do the transaction. If I pay out into a bank account or into a wallet account, it only costs like $0.50. So margins tend to be higher, the higher percentage of the transactions that are paid out digitally. Then on the flip side, so as that grows, that’s growing 31% even though our transactions are just growing like 10% or whatever the number is. So that’s good. And the other piece of this is, just more transactions into more countries.
It’s the send side. It costs — because I don’t have to pay part of the customer’s fee to the agent, a digitally acquired transaction has slightly better margins than a physically acquired transaction.
Operator: And our next question is coming from Charles Nabhan of Stephens.
Charles Nabhan: I wanted to start with the Money Transfer segment, and I was hoping you could give us a little color around specifically what geographies are driving some of the strength in cross-border? And on the flip side, I know intra-U.S. has been weak for some time. But I’m wondering, are you seeing any deceleration or a slowdown in the decline within that business at all?
Michael Brown: In answer to that last question, absolutely. Our decline is now roughly 10%, when it used to be roughly 20%. So it’s declining slower, but there’s also a smaller piece. So remember what this was — the specific U.S. to U.S. business was called Walmart to Walmart. It was where people could bring their cash into a Walmart location, and it could pop out in another Walmart location. So that’s — with the advent of things like Venmo and Cash App and all these other digital methodologies to send money, that has really taken a bite out of what Walmart can do with the Walmart to Walmart cash-to-cash business. So that’s why it’s continued to go down. The nice thing is all our international business is up, and thus, this cash-to-cash business becomes a smaller and smaller piece of our total.
Rick Weller: And remember that movement to an alternative form was really accelerated in the COVID period when you didn’t have people at the customer service counters. People were restricted from going in buildings. There was closings of stores and stuff like that. So it kind of had a unique set of circumstances to it. But — as Mike said, the rate of decline is tapering off and the absolute amount by which it’s declining against is obviously lower than it was.
Charles Nabhan: Got it. And on the cross-border piece, anything you could say on the — where you’re seeing strengths geographically?
Michael Brown: Yes. That’s been pretty consistent and pretty strong in virtually all our geographies. We don’t have a bad geography right now.
Charles Nabhan: Got it. And as a follow-up, I wanted to drill into some of the initiatives you have in place within epay that you had alluded to, Mike. Is there anything you could say about specific products or what’s on your product road map within that business? And how we should think about KPIs as well as the timing of contribution from some of the initiatives you have in place within epay. Clearly, you have a strong history of repositioning that segment. And I think — I would like to understand what’s next and what the next evolution of epay would look like?
Michael Brown: Okay. Well, we have Kevin Caponecchi, our CEO of the epay segment. So I’ll let this be the last question, but I’ll let Kevin give a shot for the answer.
Kevin Caponecchi: Yes. So historically, we’ve always distributed what we referred to as third-party content, whether that’s a mobile top up or whether that’s a Google Play credit. It’s not our product. It’s a product owned by another brand. And Rick and Mike went through the whole transformation of epay over the last several years, where we’ve continued to change the product mix. Looking forward, our goal is to introduce more products, as Rick mentioned, that are epay branded, that have a higher margin. And those products take on different form factors. The second thing we’re looking at introducing is more solutions. We referenced Skylight in the earnings call, and we introduced Conductor platform in the earnings call. Those are both solutions for both our retail partners and our brand partners.
So looking forward, we think there will be a — we were driving a shift mix from third-party content to products and solutions that are owned by epay that will have higher margins.
Michael Brown: All right. Thanks, everybody. We’ll look forward to talking to you in about 90 days. Thank you.
Operator: This concludes today’s conference call. Thank you all for joining. You may disconnect.
