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MoneyGram International (NASDAQ:MGI)
Q3 2020 Earnings Call
Oct 30, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the MoneyGram International, Inc. third-quarter 2020 earnings release. Today's conference is being recorded. [Operator instructions] It is now my pleasure to turn the floor over to your host, Stephen Reiff, head of corporate communications.

Please go ahead, sir.

Stephen Reiff -- Head of Corporate Communications

Great. Thank you. Good morning. Happy almost Halloween, and thank you for joining us today.

On the call with me are Alex Holmes, MoneyGram chairman and chief executive officer; Larry Angelilli, chief financial officer; and Kamila Chytil, chief operating officer and leader of the company's digital business. On the MoneyGram investor relations website, you can find our earnings press release and presentation which is intended to supplement our prepared remarks during today's call and provide the reconciliations between GAAP and non-GAAP financial measures. We will refer to non-GAAP metrics on the call. The non-GAAP financial measures provided should not be considered as a substitute for or superior to those prepared in accordance with GAAP.

They are included as additional clarification items to aid investors in further understanding the company's performance in addition to the impact that these items and events had on the financial results. Please note that today's call is being recorded. During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results can materially differ because of factors discussed in today's earnings press release and the comments made during this conference call and in the Risk Factors section of our Form 10-K, Forms 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to you, Alex.

Alex Holmes -- Chairman and Chief Executive Officer

Great. Thank you, Stephen. Good morning, everyone, and thank you for joining us today. The amazing performance of our digital business drove yet another impressive quarter as the company continues to build upon its financial growth trajectory.

Our customer-centric strategy and growing active customer base helped deliver year-over-year money transfer revenue growth for the quarter while the strength of our adjusted EBITDA and cash flow demonstrate how our investments to build a scalable infrastructure are paying off. Through our customer-centric strategy and digital transformation, we've made numerous targeted strategic investments over the past few years to build, modernize and derisk our business. Through these combined efforts, we've created an agile mobile-driven consumer-centric organization, delivering consistent results. Our digital transformation began with investments to build a leading fintech powered by our trusted brand.

Our consumer direct channel, MoneyGram Online, the largest component of our overall digital business, has been a catalyst for new customer acquisition. Consumer demand for our app has been skyrocketing, and 85% of our online transactions are now done on mobile devices. This business continues to be a significant driver of growth and profitability as we quickly scale. In a similar vein, our investments to deliver the best customer experience have not only impacted our consumer direct channel, but they have also impacted each customer touch point.

Initiatives such as a better POS experience, to digitize customer service capabilities, to personalize communications, to the redesign and rapid expansion of our loyalty program, are all resulting in a growing active customer base with higher customer retention rates. As we prioritize digital growth, we've also selectively invested in a targeted global network overhaul, particularly in major receive markets and their corresponding corridors. This network overhaul has covered both physical and digital partners with a particular focus on improving our account deposit capabilities, and adding mobile wallet partners, the details of which Kamila will discuss in a few minutes. Another key aspect of this strategy has been to renew and add key strategic partners, thereby improving throughput and ensuring the stability and longevity of our physical market presence.

We continue to make great strides against this pillar, adding post offices and retailers in select markets around the globe, while also renewing post offices, large-format grocery chains and, of course, entering into a three-year extension with Walmart. The benefits of our strategy are clear to see and are of particular importance today as we continue to navigate these fast-changing and incredibly uncertain times. Turning now to Slide 5. Despite the global uncertainty, our execution and agile management of the company has positioned us to navigate the current environment, capture market share and deliver strong results.

Notably for the quarter, we reported 5% year-over-year money transfer revenue growth, which was led by an increase in global active customers. After returning to growth in June and then reporting a record-breaking July for transactions, our momentum continued into August and September, resulting in 10% transaction growth for the quarter. Excluding the U.S. to U.S.

market, our transaction growth was even more impressive at 14%. Importantly, this momentum has also continued through the first 29 days of October. Growth in the quarter was once again driven by our digital business on the strength of a 140% year-over-year increase in active MoneyGram Online cross-border customers. In September, MGO recorded its ninth consecutive month of triple-digit cross-border growth, which is truly incredible.

Growth in the quarter was also supported by the continued recovery of our walk-in business. While not every market is back at pre-COVID levels, in general, we've continued to see improvement in our active customer base from April lows. This improvement was led by increased active walk-in customers in markets across the world, including Africa, the Middle East and Europe. In pausing here for a minute, I'm often asked about our view of the industry and how we see our business moving forward.

It really is a remarkable time for our company, and we are seeing a tremendous shift in where our transactions originate. As you know, digital transactions represent 27% of our total money transfer transactions. What you might not realize, though, is that our global MGO business is by far our largest single originator of transactions. In fact, if you take our individual country websites and compare them to our agents, three of them would now be on our top 10 list with several other country sites having quickly moved into the top 25.

Our business mix is increasingly shifting to digital, and my view is that this will continue even as the walk-in business recovers. The U.K. market, as an example, is illustrative of the trends we're seeing in many countries around the world. As the COVID-19 pandemic hit, we saw a surge in our direct-to-consumer digital business and a slowdown in our retail walk-in business.

Since the start of the pandemic, our digital business has continued to deliver triple-digit year-over-year growth rates. This is a direct result of an increase in new active customers with a strong demand for our app. As a result, our online business in the U.K. has doubled.

At the same time, as restrictions have been eased, we've also seen an improvement in our retail walk-in business. At the end of September, our U.K. retail walk-in business had not only returned to growth but had surpassed pre-COVID levels. As I mentioned in the past, we view our online consumer direct channel and retail walk-in channel as very different businesses with largely different customer segments.

Under normal economic conditions, we believe both channels will grow, but the increasing demand for our digital capabilities will continue to shift to the overall business mix to digital. Now in addition to our strong top-line results, I'm also extremely pleased to report that our operating income for the quarter increased 123%, and adjusted EBITDA increased 33% on a year-over-year basis. These results were driven by: one, the ongoing operational efficiencies achieved as relative our digital transformation; two, the profitability of our fast-growing digital business; and three, the continued focus on financial discipline while navigating through the crisis. Given our improved results in the quarter, we paid back our employees for the amount of salary that was set aside earlier this year to ensure the financial stability of the company.

In addition, we have extended our flexible work-from-home policy until June 30, 2021, providing certainty to our hard-working parents and particularly all the mothers out there, ensuring the stability of our workforce. I'm grateful to our amazing employees for their continued hard work and support during these unprecedented times. It's clear that our digital transformation is proving to be a catalyst for sustainable and profitable growth. We've talked with you now for a number of quarters about our strategy to build a digitally enabled organization ready for scale, and excitingly, this quarter, you are seeing the benefits of these efforts.

So to provide more color on the key components driving the tremendous results we're seeing in our digital business and to share some insights into the benefits of our digital transformation, I'd like to turn the call over to our COO and Head of Digital, Kamila.

Kamila Chytil -- Chief Operating Officer

Thank you, Alex. It's great to be here today. As you have seen from the headlines recently, our digital business is delivering incredibly strong growth shown here on Slide 6. We continue to prioritize investments in digital capabilities and user experience improvement to further enhance our consumer-focused digital transformation.

As you can see again today, these investments are paying off and delivering strong results. On a transaction basis, our overall digital business has nearly tripled since the third quarter of 2017. Each component adds up to create a winning formula for our business. And in the third quarter, we once again drove amazing performance across each channel.

In our direct-to-consumer channel, MoneyGram Online, we delivered 111% year-over-year transaction growth and 114% revenue growth. In September, we announced our ninth consecutive month of triple-digit cross-border transaction growth. And for the quarter, it grew an impressive 176%, with 174% year-over-year revenue growth. Let me pause here quickly, as you may have noticed, the narrowing gap between transaction and revenue growth rate, which is an important theme for the quarter.

Revenue and transactions are now largely growing in parallel and our customer direct channel, and we are focused on driving optimization at the company level as well. Excitingly, as Alex mentioned earlier, three MGO countries have surpassed physical agents and are in the company's top 10 agent partner list. And turning now to the second component of our digital business, digital partnerships. Every day, we're fielding numerous calls from companies around the world who are reading about our impressive results and want to access our customer-centric capabilities and global platform.

Our leading APIs are enabling quick integrations, and we're continuing to drive results from both new and existing digital partners. Over the quarter, digital partnerships delivered transaction growth of 79%. And finally, as a result of our rapid acceleration of new account deposit and mobile wallet partners in key receive markets around the world, transactions sent to bank account increased 157%. In fact, in India, the business has more than doubled.

To further these efforts in the quarter, we announced new partnerships with Airtel, Thunes, InTouch and MFS Africa to give us access to mobile wallets in 28 markets in Africa. We also continue to expand our partnership with Visa Direct, paving a faster, more convenient way for consumers to transfer money. In September, transfers using Visa Direct rails grew over 1,000% compared to the prior year. All this together has led to 106% year-over-year digital transaction growth for the quarter with 95% revenue growth.

Turning to Slide 7. Digital performance in the quarter was led by MoneyGram's online direct-to-consumer channel. This channel has been on an incredibly strong growth trajectory these past few years as evidenced by the increase in our total active customer base. I am often asked where these new customers are coming from, especially since our cannibalization rates continue to be strikingly low.

As we analyze our growth, we are finding that most of the customers are previous users of competitor services. These customers are coming from referrals and word-of-mouth marketing as customers tell their family and friends about our service and capabilities. Additionally, customers are increasingly coming from online searches as people comparison shop in this economic environment. When they search, they find our simplified pricing and best FX rates.

They also prefer a more trusted brand during these uncertain times. And this brings me to why customers are choosing us and why we are winning? The word cloud, you see here, highlights the results of recent research where customers told us why they choose MoneyGram Online over other options. A few words really stand out; convenient, easy, fast and affordable. This is why customers are choosing us and why we are capturing market share.

Excitingly, once customers choose us, they do not leave. Our customer retention rates are around 80%, and this number continues to ramp. Our loyalty program has had a profound effect on the consumer direct business as members account for 55% of MGO transactions. This is an amazing stat, and it's meaningfully higher than the percentage of sales, even companies like Starbucks report from their loyalty members.

All this has come together to drive 140% year-over-year increase in active cross-border customers for MoneyGram Online. On Slide 8, you can see how consumer demand for the app has led to an amazing 221% year-over-year increase in transactions through the app in the third quarter and now 85% of MoneyGram Online transactions are on a mobile device. Our MGO customers have a 52% higher customer retention rates than the average retail customer, and they're sending 37% more transactions on average. We have more customers who are more loyal, transacting more often.

As discussed last quarter, the profitability of this business continues to be accretive to the bottom line. We have less commissions, less support costs and less infrastructure costs. As this business grows and our transformation accelerates, this will be an increasingly strong contributor to the bottom line. And now before I turn the call over to Larry, I'll briefly touch on other aspects of our digital transformation that are more behind the scenes and have led the way to the new, modern, mobile and API-driven MoneyGram.

Turning now to Slide 9. The benefits of our modernization efforts and our overall cultural shift across the enterprise cannot be understated. Our digital shift is fueled by a comprehensive approach, everything from enhancing our analytics engine to building out micro services and migrating to the cloud, to eliminating paper and heavy back-office processes to developing digitally enabled flexible and scalable infrastructure for future new business models and revenue streams. All of these initiatives are driving our bottom-line results.

For example, when I started at MoneyGram five years ago, approximately one in four transactions resulted in a phone call. But now after moving our call center technology to the cloud, enabling local language live chat support and creating transaction notifications, among other initiatives, less than one in 15 transactions results in the phone call. This equates to tens of millions of dollars in savings. To modernize processes and reduce our environmental footprint, we're also removing paper wherever possible as part of an overhaul to digitize documentation and reduce costs.

We're also working with our partners to do the same. Another example and critical component of our new and improved company DNA is our cloud transformation, which is in process and has already resulted in significant savings of information technology spend. I'm also particularly excited about our leading API-driven platform. These not only improve our time to revenue, but also reduce the amount of resources needed for partners to integrate to us.

We have also been on the forefront of implementing next-generation technology. It's important to remember that we are the first company to utilize blockchain technology at scale. Additionally, we've also implemented robotics process automation to drive efficiencies and have deployed artificial intelligence in multiple company functions to identify action-oriented insights. And of course, you can't fully leverage an analytics engine if your data is in multiple formats and places.

So we've spent a lot of time and resources over the past two years, enriching our data and making it usable for business decisions by putting it into a centralized repository. We have chosen and fully implemented Google Cloud Solutions to gain insights to better understand and respond to customer behavior that has been cited throughout this earnings call. These data analytics efforts have been a critical component of the evolution of that culture. Our digital transformation has fueled a huge cultural shift for the company, impacting the way we hire, train, budget, communicate internally and with our partners and also adjust all of our processes around an agile methodology with a customer-centric mindset to drive growth.

Together, this comprehensive digital transformation has enabled us to build an agile, digitally focused organization that can quickly adjust to changes in the market as evidenced during the pandemic. Our efforts have also enabled us to achieve over $200 million of savings over the last four years, which funded investments into customer experience that are now driving our strong financial performance. And Larry will take you through that now. Larry?

Larry Angelilli -- Chief Financial Officer

Thanks, Kamila. The results for this quarter not only demonstrate that our money transfer business has returned to revenue growth, but the quality of our revenues has also improved. As our digital properties continue their triple-digit expansion rates, they contributed to a significant improvement in diversification of our revenues, as well as improving operating margins. First, as Alex mentioned, our global MGO business is by far our largest single originator of transactions.

Second, in the third quarter, our U.S. MoneyGram Online business have become virtually equivalent to the size of our Walmart money transfer business. And third, as we've discussed, we now have three online countries included on our list of top 10 agents. This has significantly reduced the risk associated with both agent and geographic concentration of revenue and demonstrates important progress in the transformation of MoneyGram into a consumer direct financial technology company.

On Slide 11, we are showing sequential quarterly revenue for this year. Total revenue was $323 million for the quarter, up slightly from last year but up $43 million sequentially from the second quarter. This was inclusive of a 78% decrease in investment income on a year-over-year basis, the direct result of lower interest rates since the onset of the pandemic. This also included continuing declines in our U.S.

to U.S. business, which is now 4% on of our total revenue and actually less than 4% of our total revenue. Another important aspect of our money transfer revenue growth was that our newest and fastest-growing business was profitable. The company could not have been able to improve its operating margins if our digital revenue was at a lower profit margin or was dilutive to EBITDA.

The characteristics of our online mobile products include improved profitability because our margins are significantly higher on repeat customers. We see customer loyalty rates that are higher in the digital space and a higher proportion of our digital transaction and are coming from repeat customers. As a result, we expect to achieve sustainable margin expansion on our mobile and online products. As you can see on Slide 12, adjusted EBITDA on an as-reported basis was $68.8 million for the third quarter, an increase of 33% over last year.

With the lower value of the U.S. dollar against major currencies, our constant currency numbers are now lower than reported versus last year. So as a result, adjusted EBITDA is up 29% on a constant-currency basis. However, this also means that the value of our foreign base revenue was higher on a cash basis, which has been contributing to our improved cash flow.

In turn, adjusted EBITDA margin increased 533 basis points year over year to 21%. The margin improvement resulted from permanent efficiency gains, as well as some cost containment efforts induced by the pandemic. And as we've been predicting, we've also been able to scale expenses with a return to growth. Results also included significant foreign exchange gains in the quarter, which, in part, represented currency fluctuations brought on by the economic impact of the pandemic so far this year.

These gains offset a portion of the decline in investment income that I mentioned earlier. In addition, the improved profitability of MoneyGram, even without the currency valuation gains, was also evident in our pre-tax income, which improved $22 million and generated fully diluted earnings per share of $0.12 per share. As shown on Slide 13, the increased profitability of the company translated into a threefold increase in adjusted free cash flow over last year, and an increase in our cash balance of $32 million over the last three months. The company's cash balance increased even after higher interest expense, higher signing bonuses than last year and capital expenditures.

In turn, the company was able to significantly improve its credit metrics, as well as its liquidity position. MoneyGram widened its cushion on its financial covenants showing both lower leverage and improved interest coverage. We improved our interest coverage ratio, even though we elected not to pay interest in kind for the second consecutive quarter, and this will permanently improve credit metrics on a go-forward basis. The sum of all this is the growing, increasingly diverse and sustainable profitable revenue generation, combined with improving balance sheet strength and deleveraging has improved the credit profile of MoneyGram and supports our ability to expand our network of digital properties, as well as our agent network into the future.

We continue to sign new and significant large agents, as well as bring new customers to our app. Also, regarding our capital structure, MoneyGram closed the chapter in its history that dates back to the financial crisis in 2008. As we previously disclosed, T.H. Lee distributed its control stock position last year in the fourth quarter.

This October, Goldman Sachs completed its liquidation of its convertible Series D preferred stock position through a series of trades in the open market. Goldman completed their sales process this month. So presently, their position is down to zero. This marks the end of control stock positions on MoneyGram, and adding 8.9 million shares to the basic shares outstanding.

Our stock is now more broadly held and liquid. And lastly, our outlook for the remainder of 2020 continues to be mindful of the insecurity that still exists around the global economy and the impact on our customers throughout the world. While the strength of the company's digital business is driving improved performance, the global pandemic continues to create economic uncertainty through the world. Most countries continue to maintain restrictions on travel.

And over the last few days, several major countries have reinstituted lockdowns. Given how these new restrictions are, it's difficult to predict their duration or the resulting impact on our company. However, we're assuming the global economic environment will be fairly consistent with the third quarter and the fourth quarter, and the company is providing the following outlook. For the fourth quarter, the company anticipates reporting global revenue growth of approximately 1% on the continued strength of the money transfer business, offset by lower investment income.

Based on these revenue trends, coupled with the continued expense benefit of its digital transformation, the company anticipates reporting adjusted EBITDA growth of approximately 10% year over year. And now I'll pass the call back over to Alex.

Alex Holmes -- Chairman and Chief Executive Officer

Great. Larry, thank you very much. In summary, against the backdrop of the global pandemic, we've been able to consistently deliver strong results that have exceeded expectations. We have now posted three consecutive quarters of adjusted EBITDA growth, return to revenue growth on the strength of our digitally powered global money transfer business, posted nine consecutive months of triple-digit cross-border online direct-to-consumer growth, and we continue to drive increased profitability and cash flow.

As we discussed on the last call, I think this performance and our continued momentum more than warrant a revaluation of the company. And with that, I think we're ready to turn it back to the operator to open for questions.

Questions & Answers:


Operator

[Operator instructions] We'll go to our first question from Kartik Mehta with Northcoast Research.

Kartik Mehta -- Northcoast Research -- Analyst

Hey, good morning. How are you, Alex and Larry and Kamila? Alex, I wanted to ask you a little bit about the success you're having on the digital side. And I know in your prepared remarks, you alluded a little bit to it, but I'm interested in understanding maybe where all this market share is coming from. Is it just traditional retail companies, money transfer companies that just can't meet the needs of their customers? Or is it other digital customers of other digital companies?

Alex Holmes -- Chairman and Chief Executive Officer

Yeah, no, it's a great question, Kartik. And I'll make a few comments and then turn that over to Kamila to give you some more detail and insights on that. But it really is a combination of all the above. We've been doing a lot of consumer surveys and having conversations.

And it really is a number of different things, right? It's consumers that are -- used traditional methods, obviously, for a number of years, and they're looking for new alternatives, people that have become digitized over the last couple of years and looking to find easier, more efficient and cheaper ways to send. And then, obviously, there's always new customers coming into the mix. And so it really is coming from a variety of different places, but obviously, primarily from traditional channels. I think in the last quarter here and maybe in the second, we're also seeing some benefit from the travel lockdown.

I think as we all know, a lot of consumers typically take money home with them when they travel and visit family, particularly out of the Middle East or from the U.S. back down into Latin America. And obviously, with the lockdown and travel restrictions, that has not occurred. So I think we are seeing some new customers coming into the mix that way as well.

And I think the benefits of that are great to see because, obviously, longer term, those customers tend to be stickier and stay with us. But I'll let Kamila add some more color on that.

Kamila Chytil -- Chief Operating Officer

Thanks, Alex. Yes. You covered it. The only one sector that I did not hear you mention were banks.

So Kartik, we are studying to understand exactly where our consumers are coming from. And we have identified our traditional competitors, fintech competitors and then also banks that we clearly don't compete with directly, but we are also gaining market share from consumers that traditionally sent cross-borders with the bank.

Kartik Mehta -- Northcoast Research -- Analyst

Yes. And then, Alex, just thoughts on pricing. As the digital business is growing, and there are a lot of digital competitors out there. Are you seeing any pressure on pricing at all? Or do you anticipate that being an issue as you move forward?

Alex Holmes -- Chairman and Chief Executive Officer

Yes. Look, I think that -- I think I've long said, the industry, in my view, is very competitive just across the board. And obviously, pricing has been one of the main areas of focus for a lot of online competition for a number of years. And obviously, in the walk-in space, on the retail side, it's been very price competitive for a very long time.

And I think that when we launched our MGO business and began to expand it, we went in with a low price point for that very reason. We wanted to be able to attract consumers, be disruptive to what was happening in the market, and we wanted to capture as many consumers as possible. And so I feel like we're very well-positioned in our pricing, generally speaking. We've taken prices down.

In a number of places, I think we've talked about in U.K. and Germany and the U.S. outbound market, which were priced higher for a long time, and we brought prices down to capture consumers and gain market share. I think that the online space continues to be competitive.

I think it's going to continue to be competitive and the walk-in space will be the same. The business is shifting to nonexclusive as we've talked about a bit, and I think that that's also driving the need for not just a better customer experience, but also more sensitivities around pricing and some others. I mean, some of our largest competitors are lowering online prices, have been lowering online prices, I think, to be competitive with us. And so we have to be sensitive to that and react to it.

But I feel like it's an area that we're going to win. I think we know the factors that drive the consumer behavior and what we need to do to continue to keep maintain our growth and accelerate growth and bring on more active customers. But yes, I do think it's competitive and will continue to be so, but I feel like we're extremely well-positioned to compete.

Kartik Mehta -- Northcoast Research -- Analyst

Thanks, everyone. Appreciate it.

Operator

Our next question is from Tien-Tsin Huang with JP Morgan.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Hi, can you guys hear me?

Kamila Chytil -- Chief Operating Officer

Yes.

Alex Holmes -- Chairman and Chief Executive Officer

Yes, sir.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Hey, sorry. Hey, thanks. Good to talk to you guys. Good results for sure here.

I want to ask, just thinking about the walk-in business, which did rebound, as you called out, do you have -- I don't know if you have a view here. Do you think that that overall book of business can get back to pre-COVID levels in the midterm? Just thinking structurally here or analogizing it to, am I going to shop less or travel less for work down the road post COVID, same thing for walk-in, do you see that getting back to prior levels given what you want on digital?

Alex Holmes -- Chairman and Chief Executive Officer

Yes. I think you -- right, exactly. When you look at the market, it is a question, as you said, the midterm, is it longer term, what happens in the short term, and it was a very interesting quarter for us. We did see a lot of recovery in a number of markets.

In certain cases, individual retail outlets or individual agents themselves perform better than others. Europe had a very good quarter and saw some really nice bounce back. The U.S. recovered very, very well, but it didn't get back to pre-COVID levels.

I would say, in parts of the world certainly done better than others. I think Latin America continues to lag pretty significantly, and there's a certain number of markets across Asia, which really haven't come back to where they were. So it is an interesting question, and I do think it is one that everyone is focused on and thinking through. It's nice to see the GDP recoveries across Europe, the strong recovery of GDP in the U.S.

And I think also while there's some new lockdowns coming and restrictions, I think, will be kept in place, it does seem that the customers in our business mix are resilient, and they continue to find ways to make the money flow back. So I do think that in time, we will see the business recover. I do think, for us, personally, as a player in the industry, we are going to be looking for that shift to digital to continue. And I think just the stats you see around customer acquisition, active customers, the number of transactions that they do, their stickiness, it just outpaces the walk-in space.

It's a different competitive environment, and you're allowed to position your product, I think, in a much more dynamic and visible way to those consumers. So I guess, I'd answer that two ways. One is I do think that the business in the walk-in space can recover. What those growth rates look like long-term is difficult to say at this point because I think in some ways, it is a new normal that we're kind of walking into and not -- I think once things shift, you don't really ever go back to where you were.

I think things always change a little bit. But anyway, yes, no, look, I continue to be bullish on the industry and very favorable on both the walk-in business. But obviously, the digital business is sort of speaks for itself, and I think will continue to be the driver of growth.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Yeah, no, it is really interesting. My quick follow-up, just your digital transaction, the revenue growth has tracked very nicely and tightly as you've called out here. I guess, some of the digital players have been starting to lower some pricing we've observed. I think Western Union last night mentioned they're going to do some selective price changes as well.

I'm curious sort of the price elasticity sort of debate here and your thinking around pricing now given that customer acquisition is so important from an LTV standpoint?

Alex Holmes -- Chairman and Chief Executive Officer

Yeah. I think there's a lot in that question, and there's a few things that are super encouraging. I mean, one is, it does appear that across the board, there's a lot of favorability and growth from a variety of competitors out there, right? So the digital shift does seem to be picking up customers from more traditional methods or from banks and from other areas, as we talked about earlier. And so I think that there's a lot of market share to capture in the online space, just across the board.

And competitively, I feel like we've taken -- started our prices in a very competitive point, and I think that we've taken a lot of opportunity with FX management and some new things that we're trying to do. Word of mouth, loyalty, referral programs, these things are all additive to the benefits that consumers get for using the product. They get discounts, they get money back, money off, etc. And we're also partnering with a lot of players, partners and receive markets for wallets and account deposits that are also providing incentives to consumers as well in a variety of ways, right? So benefiting by putting the money into the wallet versus picking up cash and these types of things.

So I think we're very well-positioned to compete from a price perspective. Yes, Western Union did talk about that. We've seen, for example, Western Union, all of a sudden, got very aggressive on U.S. to Mexico online pricing.

I think that's a direct response to our performance there. And it doesn't give me much concern that we'll be able to continue to compete. I don't know, Kamila, if you want to add anything to that?

Kamila Chytil -- Chief Operating Officer

Yeah, thanks, Alex. I guess, one thing I would add is that transparency of price is really critical to this customer base. We have been experimenting, if you will, and trying different things in this channel for about 15 months now. And one thing that we see is consistency and transparency is really critical.

So customers now trust us that we will give the absolute best possible price with the best experience. And that's why our retention rates are at 80%. So they are fully able to comparison shop. We are seeing that they're comparison shopping, but they're still choosing MoneyGram over some of the other competitors that you mentioned, as well as the fintechs.

So we're really confident in the formula that we have developed over the last 15 months or so, and it's really paying off. I mean, I really wanted -- I'm glad you noticed the major narrowing of revenue and transaction growth. Because that really speaks to the fact that we are so much more consistent in what type of customers are coming to us and then the fact that they're staying with us and we are getting more of their share of wallet of their transactions.

Larry Angelilli -- Chief Financial Officer

And if I could just add one other point to that. This was a quarter where it was early the first time that you had started to see a return to economies of scale. And so when you start to grow, you can scale your cost, which means your ability to handle price compression is actually better. But also the beginning of that trend, too, where we're in a position to handle price compression if we start to see it happen.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Got it. All great points. Thank you.

Alex Holmes -- Chairman and Chief Executive Officer

Thanks, Tien-Tsin.

Operator

And we'll go next to Bob Napoli with William Blair.

Bob Napoli -- William Blair and Company -- Analyst

Thank you, and good morning. Congratulations on very impressive trends and persistence, great to see. Just, do you have the number of digital active users for your -- that you can share with us and the growth rate of that?

Alex Holmes -- Chairman and Chief Executive Officer

Yeah, we're not quite at the point of sharing the actual numbers. I mean, we've talked in the past about millions of total customers. We look at customers in a variety ways. We look at customers, obviously, in total for MoneyGram on both the sending and receive side, walk-in, and then we have, obviously, customers that come to digital partnerships.

We have the customers that are direct MoneyGram Online. And then, we have a view of those customers across a variety of different cuts. So you can look at them sort of on a 12-month, three-month, current month active basis and how you kind of look at that. So I think, as Kamila pointed out, we are definitely learning a lot about our business and our customers.

We're doing a lot with data analytics and enhancing that. And so we are extremely focused on the customer base, how do we acquire customers, retain them and sort of their patterns of behavior. And it's something that we're learning a lot about, at least definitely more so during the pandemic than before because, obviously, patterns have changed. And so we are pulling all that together.

So it is something that we're looking at doing longer term, but not quite ready to talk about that straight up just yet. Anything you want to add Kamila to that?

Kamila Chytil -- Chief Operating Officer

Well, we did disclose that we had 140% year-over-year increase in our active cross-border customers for MoneyGram Online. And those are -- that segment is one where we're seeing the highest growth. They are the ones that are completing the most transactions. They're the ones that continue to come back to us most often.

So while we're not releasing absolute numbers, as Alex mentioned, they are high, and they are growing very, very fast.

Bob Napoli -- William Blair and Company -- Analyst

Thank you. Then I mean, there are rumors, every once in a while, of MoneyGram being an M&A target. And part of the thesis there is that, well, look, how much their balance sheet is very highly leveraged with very expensive debt, and they can reduce the cost of that debt. Well, with your improvement in financial performance, is there visibility to being able to refinance that very high cost debt?

Alex Holmes -- Chairman and Chief Executive Officer

So Larry, you want to jump in on it?

Larry Angelilli -- Chief Financial Officer

Yeah, sure. So this quarter really made a marked improvement in our cushion under all our financial covenants, and we are actually very comfortable against these covenants. So it is pointing to the ability to have a more appropriately priced and structured credit agreement. I think our expectations would be that we could with a couple more quarters like this and also getting closer to the end of our DPA would take a look at the capital structure again.

So everything is pointing in the right direction, but I don't think it's something that we would do this year.

Bob Napoli -- William Blair and Company -- Analyst

OK. And then, just the Visa Direct, that 1,000%, how -- what percentage of your business is done with Visa Direct as your online? I'm assuming you're talking about the online business only. But what is the benefit of Visa Direct? How important is that to your product, and how frequently you use that?

Kamila Chytil -- Chief Operating Officer

Yeah, good question. Thanks, Bob. So Visa Direct is really important because it does deliver funds to receive bank accounts or debit cards that are linked to bank accounts in essentially real time. We were the first company that actually integrated with Visa Direct, and they actually have the ability to push to MasterCard, too.

So it encompasses both brands under one rail, if you will. Senders like it a lot because debit cards PANs are so common and oftentimes easier to enter than, for example, a very long IBAN number, right, or an account number. So we have found that it's a channel that senders like. We've also changed some options in how you can receive the funds.

So sometimes consumers can enter the information themselves on the receive end, which again makes the senders information even easier, and we advertise it as a direct to debit card send. So it's been great for us. It's growing very, very fast. We've just expanded, over the last quarter, into a multitude of corridors.

So of course, we started piloting with the U.S. over a year ago. We went live over a year ago, and then we started adding additional countries. We have a lot more coming out of different send markets in addition to the U.S.

So it's continuing to ramp and scale. Again, it's not something that we break out of our specific numbers, but it is becoming an important method that's growing very quickly, and the transactions are certainly adding up across the corridors.

Bob Napoli -- William Blair and Company -- Analyst

Thank you. Are you able to price for that? Are you able to add because for the real-time payment option?

Kamila Chytil -- Chief Operating Officer

Yeah, good question. We are pricing for that, yes. We have been -- we have price control, if that's your question. And then, yes, we are able to, again, make it attractive to the consumer because of the fact that it is going direct to a debit card, and we don't have received commissions, right? So it's one of the products that's really accelerating our digital adoption.

And it's also more lucrative for MoneyGram than pricing to agent commission.

Bob Napoli -- William Blair and Company -- Analyst

Thank you very much. Appreciate it.

Alex Holmes -- Chairman and Chief Executive Officer

Thanks, Bob.

Operator

We'll go next to David Scharf with JMP Securities.

David Scharf -- JMP Securities -- Analyst

Hey, good morning, and thanks for taking my questions.

Alex Holmes -- Chairman and Chief Executive Officer

You there, David? You faded out, David. I apologize.

David Scharf -- JMP Securities -- Analyst

I'm sorry. Can you hear me?

Alex Holmes -- Chairman and Chief Executive Officer

Yes.

Kamila Chytil -- Chief Operating Officer

Now we can. Yes.

David Scharf -- JMP Securities -- Analyst

OK, good. Larry, you had referenced that you saw some reemergence of actual scale this quarter with the bounce back. And I'm wondering, a lot of companies often publish sort of the slide of their long-term operating model, where ultimately they see, among other things, their operating margins eventually reaching, peaking or maturing at. Within that context, I mean, given the significant shifts in the business mix, can you give us a sense on how we ought to be thinking about, how you view your target EBITDA margins a couple of years down the road?

Larry Angelilli -- Chief Financial Officer

Well, that's a hard question to answer without giving some sort of guidance. So I'll have to touch that and that this isn't guidance. But we've always said, and I think traditionally, we've said that we feel comfortable in the high teens with an adjusted EBITDA margin. I think this quarter was 21%.

I don't think that's the new normal. I think a more high teens number is appropriate. And I really do think it's going to be a function of the mix. What we're seeing evolving is that we can get higher gross margins and operating margins in the digital space, but it's still a little over a quarter of our revenue.

So if we get to where digital starts to become a much more meaningful part of our total transaction flow and revenues, you should see some margin expansion come with it. But it's a little bit unpredictable because it's still relatively small compared to the legacy business. So the emergence of the new business is going to be the driver of that. And I think it's a little early for us to make that call, but we are getting scale again in our walk-in business, too.

So you're going to get some lift from both of those in the near term. But as I said, I think high teens adjusted EBITDA margin is what we're targeting.

David Scharf -- JMP Securities -- Analyst

Got it. Got it. No, no, that's helpful. I mean, obviously, a lot of moving pieces.

Just quickly, looking at the word map that was tossed out on Slide 7. And I'm wondering, there's always a little bit of an unwritten rule on these calls. You were not supposed to talk about specific competitors. But at the end of the day, you and Western Union are two global providers.

And they, obviously, have been providing a lot more disclosure and emphasis on their digital penetration and shift as well on these calls. And I'm wondering, in a vacuum, convenient, easy, fast, affordable, really don't say a lot when we don't have something to compare it to. And I'm wondering if you can maybe provide either -- well, maybe just some qualitative commentary on how you think your online offering stacks up to westernunion.com, whether there are some meaningful points of differentiation that you would highlight or ultimately, kind of what underlies the word feedback from these surveys.

Kamila Chytil -- Chief Operating Officer

Yeah, sure. Happy to do so. And as you noted, these are our customers' words. These are not our words.

They are the ones that are telling us why they've switched or why they are picking MoneyGram. But you're right, there's definitely a huge Western Union presence in the online market. I think they disclosed yesterday some of the third-party data that shows they have a lot of downloads, and that's certainly true. But we are taking share.

There's no doubt about it. We have some features that are significantly different in our program. Number one, we have a much more successful loyalty program. So once we win that customer, they come back to MoneyGram.

We don't offer any type of points that are difficult to redeem. Our program actually has a discount on subsequent transactions at the right number of transactions. So that's very attractive to our customers because they're essentially giving us more transactions every single time versus just doing it when the rate is better or the price is lower. So they're essentially converting to us and staying at, again, that 80% retention rate and climbing.

So that's one major point of differentiation. And then, the other thing that I wanted to really point out is convenient and fast. So we've introduced a variety of product features that allow our customers to complete their subsequent transfers much faster. They're able to do it with just a few clicks.

They're able to set up recurring payments, they're able to not have to worry about reentering the information with products such as Visa Direct with our account deposit products that actually remember all of that information. This is also just a point of friction that's eliminated from the customer experience. And we're finding that that's really what it is about. It's about friction.

We have a very clean UI. We have a very clean design that makes a difference in this demographic, right? They don't want to have to search. They want to trust that your price today is the best. And if the UI is clean and it's fast and they don't have to reenter the information and the price stays consistent, it doesn't dynamically move up and down constantly, then they always come back.

David Scharf -- JMP Securities -- Analyst

Got it. No, that's great. That kind of color is very, very helpful. And then, just lastly, Kamila, how is retention rate actually calculated when you referenced an 80% retention rate? Like over what period? Is it customers that have been online for one month active or six months? Just trying to get a handle on what that metric actually refers to.

Kamila Chytil -- Chief Operating Officer

Yeah, good question. So we actually calculate a three-month active retention rate. We do calculate it in a variety of ways, right? So we overall, assume a customer is a customer if they've been with us for 12 months. If they don't transact within 12 months, we no longer count them as a customer, which is fair and kind of covers the holiday centers or the birthday centers.

But beyond that, we don't report these massive numbers that a lot of the other fintechs report of somebody who's ever registered or somebody who's ever done a transaction. These are very active, very sticky customers. So we look at them over a three-month period. And when we win that customer, if they come back to us, within that monthly three-month period, we count them as a retained customer.

And then, again, remember, our productivity rates are so much higher. So most customers give us more than one transfer, more than two transfers per month. So it's a pretty sticky number.

David Scharf -- JMP Securities -- Analyst

Got it. And then, lastly --

Alex Holmes -- Chairman and Chief Executive Officer

Sorry, David, I just wanted to add to that. Kamila hit on something is very interesting, a little bit back to Bob's question, not every consumer that's in the online space behaves the same way, right? So they have a lot of different patterns of behavior. Some customers are sending multiple times a week. Some are sending multiple times a month.

And others are maybe once a month or once every two or three months, so you really have to categorize the customers as well, and it's very different by channel and very different by end market. So I mean, that all comes back to again, how do you define a customer an active and how do you aggregate that and bundle it all together, and that's the kind of thing that we're going through and looking at, but it's not as simple as assuming every customer transacts consistently twice a month and every corridor. So it does have a lot of complexity to it.

David Scharf -- JMP Securities -- Analyst

Clearly. Perfect. Well, thank you very much.

Kamila Chytil -- Chief Operating Officer

Thank you.

Operator

Next to Mike Grondahl with Northland Securities.

Mike Grondahl -- Northland Securities -- Analyst

Thank you, and congrats on the quarter guys. And Larry, seeing that leverage for the first time is pretty cool, too. Two questions. One, I think you answered the question on Ripple a little bit earlier, but maybe as a follow-up.

Do you feel like that's working for both parties and that you can extend that relationship? Secondly, if you could spend a minute just on the Walmart renewal, how you got three years out of them? And maybe lastly, just what are you thinking about the debt today and going after that refinancing it or seeing what you can do there? Thank you.

Alex Holmes -- Chairman and Chief Executive Officer

Yeah, thanks, Mike. And it's good to hear from you. Yeah, let me take the first two, and I'll pass the debt one down to Larry. Look, the Ripple relationship has been a great relationship and, I think, very positive for both companies.

I think you have to step back for a minute and really try to appreciate what Ripple is really looking to do, which is they don't like the word disrupt, and I kind of agree with that. They're trying to really recreate and come at it from a very different angle, solving some of the world's global payment problems in terms of trapped liquidity and money in different markets and these types of things. And one of the biggest inhibitors to doing that is actually getting people on your network and consistently using the platform. And so that is something that we've been actively doing with them.

And I think the relationship has been very positive for both parties. That contract does extend, but I think for at least another 18 months or a couple of years. And we've been doing ODL with them. We're focused on the expansion of the RippleNet service as well.

So there's more to do and more to come. And I can't speak on behalf of them, but I would say that it's been a mutually beneficial to both companies. We've learned a lot. We continue to pivot the model, and it's certainly been beneficial to us.

Walmart, I think, is always an ongoing evolving relationship. We've been with them for a number of years. And obviously, to continue that business for any period of time going forward is something that we are very excited to do and proud of. It is not, obviously, a relationship that you take for granted.

It's something you have to work at every day. But that has really migrated to nonexclusive. And I think Walmart has become more comfortable with consumers making the choice at the point-of-sale about which service and product they want to use. I think we provide a very competitive service there.

Obviously, with the changes to Walmart to world this year, we've had to reduce prices and bring down some FX rates, and that's, obviously, been a headwind for us all year on growth. But to put up the numbers we're putting up with that happening and to retain the number of customers we've retained is very positive for that relationship. And so we'll push it forward the next couple of years and see where that can go. So very pleased with that and very thankful to Walmart and their team for all their support.

It was, obviously, very challenging six months for them and for us with all the changes with COVID and everything else that was happening. So to be able to get that done at the end of the quarter was very nice. But Larry, I'll let you talk a little bit more about the debt question.

Larry Angelilli -- Chief Financial Officer

Yeah. And there's no question that our credit metrics now are -- put us in a different league from where we were when we did that refinancing. One of the speed bumps here is -- there's two tranches here. We have first lien, we have second lien debt.

I don't think it's a question of if, it's just a question of when. And when you have to refinance your entire capital structure, I think we want to go and do that when we get best execution. And maybe waiting a little bit until we get closer to the resolution of certain other things is the time to do it. We are definitely focused and have a priority on delevering the company and reducing our financing costs.

And so both of those fit with a refinancing. But I just think we have to figure out when is the best time to do that. And that's -- I think that's the way we're characterizing it today.

Mike Grondahl -- Northland Securities -- Analyst

Good to hear that it shifted to when. So congrats on that. Thanks, guys.

Alex Holmes -- Chairman and Chief Executive Officer

Yes, I think we have time for one more.

Operator

We'll go next to Ramsey El-Assal with Barclays.

Ramsey El-Assal -- Barclays -- Analyst

Hi, guys, thanks so much for taking my question today. I was wondering if you could give us a little bit of color or commentary or even background on the digital partnerships part of your business. What extent are they sort of white label? What's the mix between sort of white label and MoneyGram branded solutions that are in the marketplace? And how should we think for the economics relative to the rest of the business on the partnership side of things?

Alex Holmes -- Chairman and Chief Executive Officer

Yeah, that's an excellent question because, and it is one of the more complicated ones because I think the answer to your question is yes. It's a variety of all of the above. And look, at the end of the day, digital partnerships began for us in a couple of different ways, a number of years back. And so it really started with entering into agent partnerships with agents that just simply were not in the walk-in space, right? They've created digital platforms or they were a bank with a different outlet or service or a telco or someone with a wallet.

And so I would say, many years ago, we entered into those as more traditional type agent relationships with kind of a traditional send commission. It's labeled MoneyGram, and it's really sort of a throughput service. If you kind of fast forward and look at the evolution of that over the last really three to five years, and then particularly in the last 18 months, two years, that's changed quite a bit. And it is now becoming a much more of a combination of per transaction flat fees.

It's becoming white label. And it's becoming a little bit of what we call as a service. And so what we're trying to do is really give a lot of partners now the opportunity to either become part of the receive side network and part of the distribution of our service, so people can push funds into that or we're looking at the ability for others to pull funds. And so there is an evolution there, and we are starting to enter into much more of the white label as a service type relationship.

And I think it's one that will continue to evolve, and it will probably be a little bit of both. What's nice about it, for the most part, whether it's labeled MoneyGram or a white label service is that most of these providers are bringing the customers themselves because it could be a telco or a wallet or somebody who has created a business model for a different application, and they have a customer base who now want to utilize cross-border send. Sometimes they might have a couple of direct channels that they do themselves, and then they're adding MoneyGram for the global distribution and expansion of channels and capabilities. And so it's really a hodgepodge.

And in certain cases, what we are starting to do as well is really turn over the pricing to them and looking at if you pay us a flat service fee, you can control pricing and change pricing to how you want as long as we make x per transaction or per customers as it may be. So that is evolving. I'd say the profitability of it has been very much in line with our traditional business and probably shifting more to the digital model where you're picking up a flat transaction per -- or sorry, flat fee per transaction and moving it that way.

Ramsey El-Assal -- Barclays -- Analyst

That's interesting, sort of a managed service model almost. That's interesting. One follow-up from me. They, obviously, represent a small portion of total revenues, but you generate income from a couple of other sources, bill pay, money orders, check processing, interest income.

Can you give us just a little bit of your thinking on the impact of COVID on these lines? Just also your long-term strategic thinking on the sort of noncore parts of your business, if I can call them that.

Alex Holmes -- Chairman and Chief Executive Officer

Yeah. I think that is an aggregate group of businesses that have been under pressure for a couple of years for a variety of reasons. I think even pre COVID, we've seen a shift in the way that if you take the out service processing business for official checks and cashier's checks, I mean, that has been a business that's been under pressure as -- and obviously, shifts as well related to what's happening in the industry. So if there's less refis or less mortgages going on, less car loans, etc., people are not taking those checks on the flip side, the market -- with opportunity to continue to take share, but that has become a bit more digitized.

So it's a business that we continue to believe will taper off over time, but it is a very profitable business, at least in a normalized interest rate environment. So it's been unfortunate what's happened. I mean, I think you look at the quarter and we had a headwind of $10 million on investment revenue. It's not any fun because they should be in a normal interest rate environment actually additive to our cash.

The money order business, similarly, is extremely popular still. For better or for worse, a lot of the population in the U.S. still relies on money orders. I think if you look at kind of our business, plus all the other players out there in the post office, there's still hundreds of millions, 0.5 billion money orders, etc., getting processed every year.

So again, that has changed a bit. But particularly in uncertain financial times, when credit is tight and other things, these checks become very popular. So again, I think like the official check business, I think it will continue to taper off over time, but certainly not spiral down in any way, but more or less just continue to slowly erode. Bill Pay is a little bit different.

It is a product that we've long offered to our agents and partners across the U.S. as a value-added service. I would say the popularity of walk-in bill payment has been under pressure for a variety of reasons, whether that is the billers themselves are going direct. A lot of people are paying bills online.

There has been an increase in competition. Prices have come down. So that business, I believe, will continue to decline at the rate it's at and probably continue down that way and become a much less important piece of what we do. And it does have nice profit margin to it.

So obviously, we'll continue to cash flow it as that occurs, but not anticipating any real growth from that anytime soon. It has shifted to digital, which has some of it, which has been nice, but not enough to keep it really long term, I think competitive as the industry consolidates there.

Ramsey El-Assal -- Barclays -- Analyst

Great. It's helpful. Super helpful. Thanks.

Stephen Reiff -- Head of Corporate Communications

Thank you, all. Thanks, Ramsey. Thanks very much, and thank you all for joining us today. It's a great call.

It's good to talk to everybody and look forward to follow-up discussions. So thanks. We'll talk to you all in the new year. Stay safe.

Operator

[Operator sigoff]

Duration: 69 minutes

Call participants:

Stephen Reiff -- Head of Corporate Communications

Alex Holmes -- Chairman and Chief Executive Officer

Kamila Chytil -- Chief Operating Officer

Larry Angelilli -- Chief Financial Officer

Kartik Mehta -- Northcoast Research -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Bob Napoli -- William Blair and Company -- Analyst

David Scharf -- JMP Securities -- Analyst

Mike Grondahl -- Northland Securities -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

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