Earnings Call Transcript - EEFT Q1 2021

Operator, Operator

Greetings and welcome to the Euronet Worldwide First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. It's now my pleasure to introduce your host Mr. Scott Claassen, General Counsel for Euronet Worldwide. Thank you. Mr. Claassen, you may begin.

Scott Claassen, General Counsel

Thank you. Good morning and welcome everyone to Euronet's quarterly results conference call. We'll present our results for the first quarter of 2021 on this call. We have Mike Brown, our Chairman and CEO; Rick Weller, our CFO; and Kevin Caponecchi, CEO of our epay division on the call. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we'll be making today. Statements made on this call that concern Euronet towards management's intentions, expectations, or predictions of future performance are forward-looking statements. Euronet's actual results may vary materially from those anticipated in such forward-looking statements, as a result of a number of factors that are listed on the second slide of our presentation. Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide such an update under any circumstances. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures we'll be using during the call to their most comparable GAAP measures. Now, I'll turn the call over to our CEO, Mike Brown. Mike?

Mike Brown, Chairman and CEO

Thank you, Scott, and good morning and thank you to everyone who is joining us today. I'll begin my comments on slide number five. While I'm excited to be here this morning to talk to you about some pretty spectacular results, despite the backdrop of the ongoing COVID pandemic. At this time last year, we were sitting here talking to you about border closings and lockdowns in countries all around the globe, with a lot of uncertainty as to where things were going to go. We are pleased today to be updating you on two of our segments that have delivered exceptional double-digit adjusted EBITDA growth in three quarters since the call a year ago. We are finally able to discuss border openings and things returning to something closer to normal, albeit unevenly, with India still shut down amid rising cases there, slower reopenings in Europe and faster in the U.S. As you read in our press release, our epay and money transfer segments produced extremely strong double-digit year-over-year adjusted EBITDA growth in the first quarter. These exceptional results were made possible by our historical focus on building our physical networks with leading retailers and banks around the globe, as well as the investments we have made to develop our leading-edge technology, which enabled us to accelerate our digital growth plans to meet our customers' needs in the midst of the pandemic. Our more than 125% and more than 80% year-over-year digital transaction growth in money transfer and epay respectively is evidence of our success in selling our products through digital channels. And of course, none of this would have been possible without our strong balance sheet, which has not only sustained us, but allowed us to continue to invest in our mission to connect the world's one transaction at a time. While we were happy to see EFT transaction growth turn positive year-over-year as we lap the initial COVID lockdowns of 2020, the growth rates were still well below 2019 levels, as much of Europe went into another lockdown phase in the first quarter. Had it not been for these reimposed restrictions, which restrained the more valuable cross-border transactions, we would have seen a stronger adjusted EBITDA result for the first quarter. Despite the reimposed restrictions later in the first quarter, we are seeing more and more headlines coming out of Europe about border openings for both European and non-European citizens, which contributes to our more cautiously optimistic, yet conservative view on the second quarter. Moreover, as vaccinations increase, restrictions relaxed and borders open, travelers will be anxious to go on that special trip, which leads us to anticipate that our EFT segment will be operating at a higher capacity as we approach the seasonally strong third quarter. Next slide please. Many of the questions we have been answering recently revolved around what expectations should be for EFT in 2021. So here on slide six, we’ve provided a few data points to help you frame expectations for EFT as the year unfolds. After a year of talking about travel restrictions and border closing, it’s sure nice to be sitting here talking to you about countries lifting these restrictions. Just last weekend, the President of the European Commission updated their policy to allow tourists with proof of vaccination into all 27 EU countries, which would include all vaccinated Americans. However, many European countries depend heavily on the economic impact of tourist travel, so they are not waiting on the European Commission to finalize this deal. They have already created bilateral agreements with other European countries and have made their own rules about opening their borders. Some countries, like Croatia, have already opened their borders to both European and non-European tourists, while others, including Greece, Italy, France, and Serbia have announced the reopening of their borders to tourists in mid-May. The opening of borders to countries outside of Europe is noteworthy for our EFT business. As you may remember last year in the third quarter, as soon as the European countries began opening their borders to other European citizens, travel immediately resumed, and we saw a corresponding increase in transactions on our ATMs. However, about a fourth of our 2019 tourist transactions came from non-European countries, like the U.S., which were not allowed into the EU last year. So with the reopening of borders for non-EU citizens, we are hopeful to regain some portion of those transactions. Research from the European Travel Commission makes us hopeful that we can expect the same response from travelers this year. The survey indicated that 56% of the respondents planned to take a trip by the end of August, with about half of those respondents planning to travel outside of their home country. Moreover, according to the UN World Tourism Organization, actual flight and hotel bookings through March are trending ahead of previously forecasted levels with large spikes seen at the beginning of 2021, which we have presented in the graph on the right side. Finally, and maybe the most encouraging in their March update, the European organization for safety of air navigation, commonly known as Eurocontrol, updated various scenarios on travel data which they had originally forecast in January of 2021. We have included this graph on the left of the slide. The green line is their travel forecast, which assumes that borders began reopening in June, while the red line assumes a later September reopening. The blue line is the actual data through March of 2021. As you can see, the actual data is ahead of their forecast indicating that people are ready and willing to travel as soon as the borders reopen. I will note that things are changing rapidly across Europe with vaccine distribution expanding, there is an eagerness to travel. The economic benefit together with the immediate transaction gains we saw in our ATMs last year in Q3 when certain borders reopened leads us to be hopeful that we will see meaningful earnings contribution from the EFT segment in 2021. So now let's move on to slide 7 and we'll talk about the segment-specific highlights, beginning with EFT. As we announced in March, we have agreed to purchase Piraeus Bank's merchant acquiring business in Greece. This will expand our omni-channel payment strategy in one of the largest markets with a trusted partner. We continue to target a late 2021 closing and expect to see the economic benefits of this acquisition beginning next year. Also during the quarter, we signed an agreement with the Bank of the Philippine Islands, BPI, to take over 300 of their existing ATMs. This is an important milestone. BPI is the first Filipino bank to turn over their ATMs to a third-party processor. Given their strong market reputation, we're confident that other banks will follow in leveraging Euronet's leading-edge technology and solutions. Last quarter, we told you about eight new network participation agreements with Spanish banks, where their cardholders can access cash from their accounts using thousands of Euronet ATMs across the country. This quarter, we expanded upon that success and signed network participation agreements with four additional banks in Spain, bringing the total number of banks we have added to our network to 12 in just the last two quarters. This is a testament to the value banks see in providing their cardholders with convenient access to cash and their recognition that Euronet's network is the largest and most efficient way to accomplish this goal. Finally, as you may have noticed in our press release, we have provided an additional data point around our ATMs. In addition to ATMs that were active at the end of the quarter, we've added the total ATMs that we've installed to give you a better idea of the status of our entire ATM estate. During the quarter, we added 340 new Euronet-owned ATMs and temporarily closed almost 1,000 to save costs with increasing lockdowns across Europe. While we lost about 346 ATMs, mainly in Pakistan where the provider decided to move the processing in-house. As you can see, our total estate remains stable with the number of newly deployed ATMs offsetting the net loss in Pakistan due to those outsourcing ATMs. At the end of the day, in a normal year, we have a state of over 45,000 ATMs ready for the tourist season with open borders. We have continued to invest in our EFT business despite the impact of COVID that it's had on our business. Our people are ready and as travel resumes, we will reopen our ATMs and expect a much better second half of 2021. Now let's move on to slide 8 and we'll talk about epay. I just have to repeat that our epay results were just outstanding and I'd like to pause and highlight how we achieved them. For years, epay has focused on three areas to expand and grow the business. First, expanding content distribution. This started with the move from solely distributing mobile content to adding digital media content with the launch of iTunes and adding brands like Google, Sony, and Microsoft among others to hundreds of brand partners, which we now sell through our network. Second, we leveraged our leading-edge technology to develop new solutions to both help our retail and brand partners improve the distribution of these products. And finally, we expanded the channels in which all of our content is sold, from solely physical retail to distribution through online stores, mobile apps, mobile operators, bank accounts, and mobile wallets. The results are not an accident. They are a result of years of hard work and dedication to serving our brand and retail partners in the best most efficient ways possible. During the first quarter, we continued to expand our presence in both our leading physical retail channels and our digital channels. This quarter, we partnered with Microsoft to launch their end-user fulfillment platform in 50 countries around the world. For Microsoft Office, they are transitioning away from a discount promotion called Save Now to an added value program called Extra Time. Epay is providing the global technology backbone behind this innovative new customer proposition. We also launched content distribution with Fame Height, a white label platform for game influencers via digital channels in 14 countries. In India, we continue to successfully enter digital channels by launching Google Play recharge code distribution through Flipkart, India's largest e-commerce platform. Finally, in the Philippines, we launched Netflix distribution through Shopee, a large online marketplace with a presence across Southeast Asia and through Touch Pay, a kiosk outlet with 2,500 points of sale in the country. It was another outstanding quarter for epay and with a strong pipeline of new distribution agreements, we expect to see continued growth from epay. Now let's move on to slide number 9 and we'll talk about Money Transfer. Holy smokes, have you seen these results. Wow, I mean, we saw international outbound transaction growth of 27% in the quarter. This is compared to a decline of 7% as projected by the World Bank. That is just stunning growth. And you might be asking how we got here. I'll tell you it's been through a lot of hard work to grow our network and provide the most reliable, convenient, and safe money transfer service for our customers. Our retail network now reaches 475,000 locations across 159 countries, and we are connected to approximately 3.6 billion bank accounts essential for digital money transfer delivery. During the quarter, we launched 13 new correspondents in 13 countries, including service with Pet Net in the Philippines with over 200 branches. We also expanded our presence in Israel by launching the Ria service at WIC WorldCom, and we signed 17 new correspondent agreements across 15 countries that will join our network in the coming quarters. We continue to see exceptional growth in our digital initiatives, highlighted by direct-to-consumer transaction growth this quarter of more than 125% year-over-year. This was made possible by the geographic expansion of our digital presence via our mobile app and real-money transfer.com from availability in nine countries at the beginning of 2020 to 22 countries at the end of this first quarter with more countries being launched in the coming months. During the quarter, we launched our app in Lithuania and launched a partnership with Bret Bank in France to pay pensions to French expats. Our bank deposit network continues to grow with transactions and volume growth of 48% and 57% year-over-year, respectively. Let me repeat that: transactions grew 48% and volume grew 57% year-over-year. That is just remarkable. I'd like to take a moment here to explain to you why these numbers are more impressive and important than they may even appear here. For years, Ria was competing with our competitors whose physical networks were much larger than ours. While we have clearly been successful in growing that network, we have simultaneously been building direct connections with our correspondent bank partners to allow for bank deposits. And we can now deposit cash into approximately 3.6 billion bank accounts worldwide. This is important to note because, as we have gone through the COVID season, we have seen volume begin to shift from cash pickup to bank deposits and Ria was ready for the shift. This is not a network that you can build overnight and requires technical integration to connect these banks. Ria has by far the most advanced bank deposit network in the world. With the COVID closures, we saw some customer bank account openings and mobile wallet adoption accelerate in the lesser developed countries, and we are best positioned to capitalize and win this volume. As we wrap up our discussion on money transfer, I'd like to point out that these results aren't just from three months of work or investments but rather years of hard work and investment on multiple fronts. We have built our retail network in both the independent and large retail chains to become the second largest in the world, and we can reach approximately 3.6 billion bank accounts for the digital money transfer, making us number one in the world for that. We have invested in our brand. We've made significant investments in our compliance, invested in our digital money transfer service, and expanded it to more countries. All of this has built momentum, which has resulted in double-digit growth for the last three quarters. With our momentum accelerating, our network growing, and our increasing brand recognition, if we can keep the current rate of growth, we'll continue to outpace the market by a significant measure. Overall it was another successful quarter for Euronet. So let's go on now to slide number 10 and I'll share with you some REN successes. The first is an agreement with Standard Chartered Bank known as SCB, a British multinational banking and financial services company, which is headquartered in London but has a very strong presence in Asia, the Middle East, and Africa. With a transformation to digital services inevitable, SCB is launching Nexus, a new Banking-as-a-Service solution, under which they will provide their banking license and balance sheet to the leading consumer-facing digital platforms to enable convenient access to financial services to millions of new tech-savvy customers. SCB has selected Euronet's REN technology as their payment stack to be offered as part of this Banking-as-a-Service model. The first country involves Indonesia, where we are helping the bank connect to leading e-commerce marketplaces in the country to offer financial products and payment solutions. This is one of several projects in which SCB is leveraging Euronet's REN technology as part of their digitalization and platform modernization strategy. Second, as we have told you on previous calls, we believe real-time payment has the potential for revolutionizing payments for customers, merchants, and corporates, and our REN technology is ready to support banks and central banks as they investigate how to participate in this new trend. To that end, Euronet's REN Connect solution, a derivative of our REN Ecosystem, allows banks to connect to domestic real-time payment schemes. Additionally, banks can accelerate innovation and deliver enhanced customer experience using our digital overlay services. The bank can deploy these new services on their mobile banking application to provide fintech life instant payment experience to their customers. So in the real-time payment space, this quarter we signed a deal with one of the largest banks in the Philippines, Bank of the Philippine Islands, to enable them to connect to the real-time payment scheme of the Philippines called Instapay. Under this project, we will enable BPI to offer both person-to-person and person-to-merchant payments in real-time using Euronet's REN Connect solution with our overlay solutions. We are excited about these technology developments and look forward to telling you about more in the coming quarters. As you can see, the years that we have spent investing in our retail channels and in developing our technology are delivering real results across our business, opening the door to many new opportunities to accelerate our growth potential. With that, I'll hand it over to Rick.

Rick Weller, CFO

Thanks Mike and good morning everyone. I too would like to welcome you to this first quarter earnings call. I will begin my comments on slide 12. I think it's worth repeating that we continue to make the most of every opportunity that we have been presented, which is reflected in another quarter of impressive results, particularly out of the epay and Money Transfer segments. As we discussed, as we move through 2020, it is really the strength of our balance sheet that has afforded us the opportunity to make the investments that in turn produce such strong results. As you can see here, we ended the fourth quarter with more than $1.1 billion in cash and about $940 million of availability on our revolver. You may recall we shared with you that at year-end, we borrowed on our revolver for treasury management purposes and repaid it shortly after the start of the New Year. This paydown is reflected in the change in both cash and debt on this slide. For the first quarter, we reported revenue of $652.7 million, operating income of $10.4 million, and adjusted EBITDA of $52.2 million. The better-than-expected revenue growth rate was the result of stronger-than-expected revenue production in the epay and Money Transfer segments. These results might have been a little better, but for the imposed lockdowns across Europe toward the end of the latter part of the quarter, which resulted in fewer of our higher-value travel-related transactions. We delivered adjusted EPS of $0.23 a share, compared to $0.55 in the prior year. On slide 14, EFT transactions grew 18% driven by increased point-of-sale transactions in Europe and a large volume of low-value payment processing transactions for Asia-Pacific customers' bank wallets and e-commerce platforms, partially offset by the more valuable tourist transactions as a result of COVID lockdowns across Europe. Epay transactions grew 49%, primarily driven by continued digital media transaction growth across our markets, with particularly strong growth from customers in South America and Asia, who have a high volume of low-value transactions sold through digital channels. As we turn to Money Transfer, we were quite pleased to see that our most profitable Money Transfer transactions, that is US outbound and international outbound transactions, grew 28% and 27% respectively. These were partially offset by declines in US domestic transactions, which netted to 14% growth overall for the segment. On slide 15, we show our results on an as-reported basis. Year-over-year currencies in most of the major markets we operate increased in the mid to upper single-digit range with a few anomalies, including the Brazilian real which declined 19%, and the Australian dollar which increased 17%. To normalize the impact of currency fluctuations we have presented our results on a constant currency basis on the next slide. I'm now on slide 16. EFT revenue declined 43%, operating income declined to 851%, and adjusted EBITDA declined 163% driven by the pandemic-induced impact of lower domestic and international ATM transactions in Europe and Asia, especially high-value cross-border transactions across Europe. Epay revenue grew 33%, operating income grew 67%, and adjusted EBITDA grew 61% driven by continued strength in digital media content and mobile sales through digital channels and certain customer promotion activity, which is recognized as revenue on a gross basis and accordingly more significantly contributes to revenue, but less to gross profit. Money Transfer revenue, operating income, and adjusted EBITDA grew 17%, 47%, and 34% respectively. These strong growth rates were the result of growth in the US and international outbound transactions of 28% and 27% respectively, partially offset by declines in the US domestic business. Revenue and operating income grew faster than transactions as a result of a shift in the mix of lower-value domestic to higher-value cross-border transactions and the leveraging of a closely managed operating cost structure. Overall, it's worth repeating that we are pleased with these very strong double-digit growth rates out of epay and Money Transfer. It is difficult to compare the EFT results with those of last year where we had two months of normal activity before the complete lockdown in March. While this year we had many of our transactions closed and faced reimposed lockdowns towards the end of the quarter. However, we look forward to better results in the coming quarters as we reopen our ATMs and Europe prepares to welcome both EU and non-EU travelers. Despite the good news of Europe reopening and studies indicating people are ready to travel, it is difficult to estimate to what level and at what speed tourism will return and the borders of Asia remain closed. Accordingly, we will refrain from giving official guidance. However, we think it is important to provide you a couple of data points to help frame your expectations. We would expect second-quarter consolidated revenue to be in the 30% to 35% growth range compared to the same prior year second quarter. From these revenue levels and with careful expense management actions, we expect second-quarter EBITDA to be in the $75 million to $85 million range. With that I'll turn it back over to Mike.

Mike Brown, Chairman and CEO

Thank you, Rick. And as you can see, there's a lot to be excited about, cautiously anyway. And with so much good news, it's inevitable that I will be asked if we can continue to grow all three businesses as tourism returns? I will emphatically answer, yes. We will start to gain momentum in EFT as borders start to open and travel resumes. We had outstanding results in epay with three consecutive quarters of double-digit earnings growth. Our Money Transfer business momentum is accelerating, making these strong results sustainable for the long term and we continue to benefit from our technology and digital investments. So I am confident that we will be talking to you about some strong growth rates for many quarters to come. With that I'll be happy to take questions. Operator, will you please assist?

Operator, Operator

Your first question is from Rayna Kumar with Evercore.

Rayna Kumar, Analyst

Thanks for taking my question. Some really helpful details you gave on just the second quarter guidance. Could you help us understand, how your revenue and EBITDA growth could look by segment? And also specifically for EFT, what are the underlying assumptions you're making specifically for the second quarter on cross-border travel? Thank you.

Mike Brown, Chairman and CEO

Maybe I'll answer the second one first, let Rick answer the first one. So boy, I'll tell you, it is a challenge to try to figure out who's going to close and who's going to open next week or next month. We got a bit of a surprise when things started to get a little bit better, and then we had the third or fourth wave, whatever it was in Europe, where we've got pretty much full lockdown in Europe in March, which certainly contained the transactions we are hoping to achieve in this last quarter. So it is challenging. However, the economic realities are still there in Europe and these countries, particularly our biggest countries with our largest estates of ATMs, which border on the Mediterranean. These countries can't afford to have a lockdown all summer. So they began even before the EU made its pronouncements to say, they're going to start to open mid-May to mid-June. So we kind of expect not a lot of EFT activity in the second quarter but nice activity in the third quarter. Of course, the third quarter still won't be 2019's levels because there are still going to be some restrictions and some reticence to travel. But just based upon what we saw last year in the third quarter, where there were no prophylactic measures, no vaccines, people just ran out of the house and went on vacation and we saw for those 8.5 weeks we were open. It was nice transactions in some of those countries doing 50% of the 2019 transactions with only two weeks' notice. So we're kind of thinking that the money and the transaction should be coming back in the third quarter. And so that's really – and not too much in the second quarter on EFT.

Rick Weller, CFO

And Rayna, let's say just a little more discussion around the – let's call it revenue and EBITDA contributions in the second quarter. As we said it, we believe that on a consolidated basis we'll be about 30% to 35%. If you kind of look under the surface there you would see that our EFT will be leading the way in that growth, which you would expect because last year in the second quarter, EFT was probably the single most significantly impacted by the lockdowns. As we've shared with you this morning, we see with borders opening and expect some lift out of those transactions. I would think it would be fair to tell you that we're being a little cautious on exactly how quickly and how much that lift will come in the second quarter. Maybe six weeks ago we would have been a little bit more bullish because prior to seeing some of the reestablishment of some lockdowns. But then today we sit here, and we see a lot more announcements about opening of the borders and the encouragement of people to travel, so that Europe can capture a lot of that tourism revenue that they missed last year. So I'd say we're being a bit cautious there. But clearly the pace of revenue growth will be stronger in the second quarter for EFT. As it relates – and then I would tell you that the Money Transfer numbers are expected to be down the fairway in that range we gave, followed by epay. All three of which are contributing nicely to that very sound double – strong double-digit growth. In terms of the EBITDA, as I said, I think we're being a little conservative there, which I believe is the right thing to do because it's just kind of hard to outguess exactly when and how quickly the travel will return. If we were to see a more robust pickup in travel, I would think that we will see that flow right to the EBITDA line because that's the one that will contribute the most lift in the second quarter as we see that. So, as Mike said, we're cautiously optimistic, yet conservatively viewing what we think will come out of the second quarter. But I would tell you that that's more of what's behind our thinking of maybe a little lighter second quarter on the EBITDA range and that is just the speed and velocity of cross-border transactions out of EFT.

Rayna Kumar, Analyst

That's extremely helpful. I have two follow-up questions. First, what is your ATM strategy and what is the pace of ATM implementation in a post-COVID world as we are transitioning? Secondly, regarding your epay business with a 61% constant currency adjusted EBITDA growth, was there anything unusual in that quarter? Should we anticipate this type of strength to continue for the rest of 2021?

Mike Brown, Chairman and CEO

Well, with respect to our ATM deployment strategy, we still see lots of opportunity. Our goal was to put in between 4,000 and 5,000 new ATMs this year worldwide. Some of those were going to go in Asia. So that's a little bit of a wildcard, but that might have only been call it 10% of those. Europe still looks strong for what we were expecting. We're also seeing this COVID thing has given kind of air cover you might say to a lot of the banks in Europe. They're using that as the excuse for closing branches. When branches close, ATMs disappear, which offers us less saturation than a given market. So that's good for us. So, we're still kind of on track to do what we promised.

Rick Weller, CFO

Regarding epay, I believe that achieving 61% year-over-year growth is challenging to maintain. It's important to consider a few factors. In the first quarter of last year, we experienced some negative impacts due to COVID, particularly during the early lockdowns when many retailers were closed. This effect carried over into the second quarter; however, we began to see an increase in sales of digital products through digital channels, which helped improve our performance. We also launched several new distribution agreements, primarily in the distribution sector, and opened more big brand products, such as those for Microsoft and Google Play. Over the year, we've expanded our channels and products significantly, contributing to that extra boost in the first quarter. There were no unusual or one-time items affecting our results in the first quarter. Thus, we're really comparing a strong quarter to a weaker one from the previous year. I expect epay to continue delivering impressive results, but I wouldn't project growth at 61%. While I would love to see that growth year after year, I anticipate it will be lower than that. Nevertheless, this doesn't diminish the efforts of the epay team, which has done an excellent job in expanding geography, distribution, and product offerings, all of which should sustain positive outcomes.

Rayna Kumar, Analyst

Fair enough. Thank you.

Operator, Operator

Your next question is from Andrew Schmidt with Citi.

Andrew Schmidt, Analyst

Hey guys, thanks for taking the questions and appreciate the detailed commentary as usual. I wanted to also dig in a little bit on the epay segment. Historically, we've always thought about this as a mid- to upper single-digit grower, but it seems between your growth initiatives and post-COVID digitization this has stepped up fairly meaningfully. Would you agree with that? And are we thinking just structurally, the epay segment is more of a double-digit grower going forward? And then I think along those growth vectors that you've outlined, whether it's geography, distribution, and product, where do you see the most lift potential? Thanks.

Kevin Caponecchi, CEO of epay division

Hey Andrew, this is Kevin. So there's kind of two things happening. As we've reported historically, we've seen a pretty significant decline in mobile over the last five years. Mobile for epay has stabilized, and in fact, we're actually getting a little bit of growth on the mobile side. So, we no longer have that drag that was on the business historically. And then second, to your point, everything that Mike and Rick talked about in terms of content expansion and channel expansion started to pay off. I think it's a reasonable assumption to move us from a high single-digit to a double-digit growth income as part of the business, in part because some of these new channels that we've talked about are performing quite well and they're quite stable. I think we've kind of hit an inflection point in epay and I continue to be optimistic about its future.

Andrew Schmidt, Analyst

That's great to hear. Very constructive. Thank you for that. And then, I appreciate the disclosure on the installed ATMs versus the active ATMs; it really highlights the amount of ATMs that are deactivated. Could you remind us how quickly you can turn ATMs back on? Should you see a tourism recovery? And is that something you would do, if you saw a recovery you would within kind of significant ATMs on?

Mike Brown, Chairman and CEO

So last year, just to give you an idea, when we entered the third quarter of last year, we had 11,500 ATMs you might call it COVID ties in the old days we got winterized. But within two weeks, we had 7,500 of those turned on. We didn't need the other 4,000 because the volumes weren't there of tourists. So, it doesn't take long. In fact, they're all technically live. They just are decashed. So what you just have to do is – and that's a nice thing about having all of these on-the-ground offices around Europe. They know when the tourists are starting to show up at the turn places. When they determine that this ATM could potentially be profitable they – it takes two days; that's it. You just put it into the queue to have the money delivery company bring the cash bring a cassette in and then it's live. So it's very, very fast.

Andrew Schmidt, Analyst

That’s great to hear guys. I will leave it there. Thank you very much.

Operator, Operator

Your next question is from Peter Heckmann with Davidson.

Peter Heckmann, Analyst

Deposit network. We talked a little bit about that last quarter and a little bit more this quarter. But how should we think about Euronet monetizing that and being able to deposit billions of bank accounts in multiple countries as well? Today how much of the monetization of that deposit network is attached to another Euronet service like money transfer? And how much of it is occurring through maybe leasing that network to third parties?

Mike Brown, Chairman and CEO

I'm a little bit confused on your question, but I'll do my best. Okay. So when we talk about that deposit network of roughly 3.6 billion accounts. This has been primarily all set up through the Money Transfer segment. When we very first started 15 years ago, some of our bigger competitors had exclusives on cash payout in a number of these countries. We focused on bank account payouts just so that we could add those countries to the list. Since then, we've continued to grow that plus our physical presence but most all of those exclusives on payout have evaporated. We now have 475,000 physical locations too. So, most all of this was started within the Money Transfer segment, and that's where most of it will be used obviously on person-to-person money transfers.

Peter Heckmann, Analyst

Okay. But as regards to the potential around the move to real-time payments?

Mike Brown, Chairman and CEO

We have two distinct products for real-time payments. One involves enabling an entire central bank in a country for real-time payments, as we did in Mozambique, and we are pursuing similar agreements elsewhere. We have observed that in countries with existing real-time payment systems, less than 30% of the banks are actually connected to these systems. This is primarily due to the banks relying on technology that is 40 years old. It's rare to find a bank that uses technology not developed at least 25 to 40 years ago, which poses a challenge in integrating real-time capabilities. The traditional ISO standard, ISO 853, was established over 40 years ago and is what these banks are accustomed to. Our solution, REN Connect, integrates deeply with the banks' systems to enable real-time functionality. The modern real-time ISO version, known as 20022, offers a more robust connection compared to ISO 8583, and REN Connect effectively bridges the two.

Rick Weller, CFO

Yes. Pete, I would add that as we kind of take a look at the intersection of the assets across our segments here; this is where we start to see some real promise for the future. As Mike says, we've got our REN product, which is the perfect design to accommodate the recent or most innovative payment technology structures out there. We're not working with old technology. You've got new players coming into the market all the time, fintech players, etc. You've got people that have wallets, other distribution platforms. Whether they're the likes of the Googles, WeChat, or Alipays, these folks all have an interest in getting payments around the world. These payments could – as Mike said, we're probably most likely initially coming out of the consumer space but can quite easily come from the business phase too, where they're paying vendors, talents, royalties, and things like that. While today most of the enterprise value that we get from this comes from our Money Transfer business, we see that there's a lot of opportunity as we go across our consumer bases and our customer bases whether it be the digital platforms that we distribute through for epay or the technology platforms that we're installing in the EFT segment. We see that there's a great deal of opportunity out there to enable other people to connect to get to 3.6 billion accounts.

Peter Heckmann, Analyst

Got it. That's helpful. And then just a housekeeping issue. But you talked about increasing some investment spending ahead of the close of the PBMA deal. Can you quantify that for the second quarter?

Rick Weller, CFO

I wouldn't say it's necessarily any kind of extraordinary. It's just putting the right investments that we currently have in the run rate of our business into that.

Operator, Operator

Your next question is from Tim Willi with Wells Fargo.

Tim Willi, Analyst

Thank you and good morning everyone. I have a question regarding Money Transfer. Could you discuss the ongoing engagement and activity of the newly acquired digital customers from the past year? Is the retention strong? Are there any churn issues, or do these customers continue to engage after signing up?

Mike Brown, Chairman and CEO

I'm glad you asked that question, Tim, because this is one of our big bragging points. Interestingly, you saw that our bricks-and-mortar business was growing 27%, 28% on international remittance, okay? Obviously what people worry about is, when you do digital, are you cannibalizing your current customers? We did another analysis just the other day, just last month, and it was something like 72% of our digital customers that came in, in that month were brand-new customers. So that would imply that 28% were current customers that we may have been servicing through bricks and mortar. So, we are cannibalizing a little bit. Still, even though we're cannibalizing, we're growing 27% on top of that. What we've also found, and it's interesting, we've seen that having an omni-channel approach to this is advantageous because sometimes people might do this digitally and then they might go into a brick-and-mortar merchant or bodega or something and do the next transaction or some combination thereof. So having an omni-channel approach is excellent. I'm telling you these are new customers coming in and that just grows our market share.

Rick Weller, CFO

And Tim, just on the matter of retention, we continue to see strong loyalty to our brand consistent with what we see in our brick-and-mortar store. We provide a quality product, secure, delivered on time, all that type of stuff. So good retention from these – no different than we see in our other business.

Tim Willi, Analyst

Great. And my follow-up was around XE, which I think obviously most people focus on Ria. Just sort of thinking about XE, which was the high dollar sort of transactions when you originally bought it. With everything you got with the REN ecosystem and your global reach, is there an opportunity, or is there something already going on within XE to think about sort of cross-border B2B payment engines? It just seems like that's something that people would see fit?

Mike Brown, Chairman and CEO

So that's what XE does. And you're right. That's actually one of the benefits that accrue to us because of our real-time payments expertise. I just saw our report the other day where we've lit up real-time payments with XE to three different countries, and those transactions were growing something like 20% month-on-month, okay? So once people understand they've got real-time payments, it gives XE an advantage over that a competitor B2B money transfer company does not have, and we get the transaction. Everybody wants to see their money land in the accounts, they're targeting instantly. Nowadays people think it should be like a text message as opposed to the old SWIFT way or something where you could wait three or four or five days until the money actually hits the account. During those days, you never know exactly where it is on the ether of the worldwide financial networks.

Tim Willi, Analyst

Yeah. It just seems like that should be a nice reopening play as well—

Mike Brown, Chairman and CEO

Yes. As we have more real-time payment options for us, we'll see more transactions go that way. It's just inevitable.

Andrew Jeffrey, Analyst

Hey, good morning, Mike and Rick. Thanks for taking the time. I'm not going to ask you to predict travel trends. But I do wonder, when I look at your EFT business, at such point that cross-border volume recovers to a level comparable to 2019, for example, is the cost structure materially different? Can margin in that business be higher at a return to peak traveler or peak cross-border volume?

Mike Brown, Chairman and CEO

That's interesting. I would say there's a couple of kind of things. We were able to renegotiate some rents at some of the more expensive places, like maybe airports, or some of these deals to be more commensurate with the number of travelers who come. So we might get a little bit of a break there. Just in general, costs do go up over time, so maybe it's kind of an offset. I don't see a significant change in margins. Remember margins in our third quarter are always due to EFT, and it's because you have a much higher percentage of those higher dollar, higher profitable transactions than say in Q1. So if you can bring in more of those transactions, if we can continue to expand to the rest of the world like we're doing, we've announced Egypt, we announced Lithuania, we're in one country in Southeast Asia and want to open up a couple more. As those things come through, then our margins would tend to migrate upwards; it’s just a question of will rents and so forth on the cost side keep us in that kind of mid-30s margin or not. Did I get that math right, Rick?

Rick Weller, CFO

Yeah. I think certainly there's a little bit of benefit we'll have on the expense side, because of the restructuring of rates and things that we've done over this period of time. I think we've peeled off the less profitable ATMs. We've taken a number of those out of the mix. The quality of our estate is increasing, but I think for your basic next box deployed, it will probably be in relatively the same kind of margin ranges. Where we would expect to see real margin expansion would be the continued leverage of putting more boxes in more countries. It’s not different than our success has been over the last 20, 25 years, it's all about getting more units in more countries, and more products on it. As we do that, we'll continue to see our margin improve. But I wouldn't anticipate the margin lift to be dramatic because of cost-saving initiatives we had over the last year.

Andrew Jeffrey, Analyst

Okay. That's helpful. Thank you. And Mike, obviously the growth in the agent network, the Money Transfer agent network, is really impressive. Is there a point at which you think there are diminishing returns to growing received agents, or should we continue to see you just compound the growth?

Mike Brown, Chairman and CEO

Well I think the reality is it's a chicken and the egg thing. If you don't have ubiquitous payout, convenient payout for someone's loved one to pick up their cash, you're going to do less transactions, but it is true. Once you get to the point where we have almost 500,000 locations right now, the next 100,000 won't be as productive as going from 100,000 to 200,000. Still, more ubiquity wins. The other ubiquity thing really comes down to those bank accounts, because much of this future is going to be digital transfers. Many of these people are going to come from cash-based economies and still do cash. But when it comes to the digital stuff, when you have roughly 3.6 billion connections, that's a big differential and a big asset.

Rick Weller, CFO

Yes. And let's not forget that we're playing an incredibly huge market here, okay? We've got a small percentage of the total market, and we've got a key competitor that's sizably bigger than us. There's a lot of opportunity out there. I would also maybe venture to argue that who says that the right number of networks is — locations is 550,000? Well maybe it's one million, I don't know. What we have been all about is again opening up new markets, more places and getting out more products. Given that we right now have a meaningful but still small piece of an incredibly big market, we're still not number one, but certainly we'll get there someday. More channels will go through too; there are more players getting into the market that weren't there. Fintech players and things like that. There will be other ways that we can use our network. So, as Mike said, there’s probably some level of diminishing returns there, but I think we're still pushing to see where that is, and we've not found the top yet.

Mike Brown, Chairman and CEO

And our partners like PayPal and Remitly have recognized this asset is something you just can't buy. They can rent it from us. More — you'll see more and more partners like them basically say we've got the best network. We want to have ubiquity and we can make a little bit of money on those transactions too. Yeah. One more question please, operator. Thank you.

Rick Weller, CFO

We lost you operator. Operator, you’re breaking up.

Operator, Operator

Your last question is from Andrew Baaj with Wolfe Research.

Unidentified Analyst, Analyst

Hey, gentlemen. Congrats on a pretty sound quarter despite a challenging environment here. One housekeeping question. In EFT, you reported a pretty sound transaction growth of $925 million which was up 18% relative to the trend of low double-digits. I mean, understanding that this is probably driven by a lot of domestic. I mean what's really working there? Because I think that that number would suggest some real engagement within the base and potentially new ways to monetize that network?

Rick Weller, CFO

Yeah. Good question. Absolutely. You see the interplay of our technology in driving transactions in our business. These high volumes of transactions is the result of us getting our REN technology into these new environments that are connected to real-time payment engines, and things like that. We're playing a role of bringing together this high volume of transaction processing in these new environments. So while these transactions are not highly valuable like we've historically seen in the Money Transfer—in the EFT segment, we're seeing the crossover between the delivery of our technology and getting to a vein of incredibly high-volume transactions that are all incrementally full bottom line profit when we get those installed. So that's really what's driving that.

Unidentified Analyst, Analyst

No, it definitely should set up for a pretty nice flywheel effect when the high-value transactions come back. And my second follow-up is, I know that we don't really have much to go off of here with regards to the cross-border EFT volumes. But any update on what you've seen from the DCC disclosure rules and any impact on your testing environments that you've been working on there with regards to attach rates?

Mike Brown, Chairman and CEO

We've been adhering to all those rules. I think 90% of the rules we always adhere to, the only new rule that changed. We've been here since last year. We haven't really seen any impact past what we had expected and communicated. So really kind of much to do about nothing.

Unidentified Analyst, Analyst

Understood.

Mike Brown, Chairman and CEO

Alright. Very good. And let everybody know, operator, I think we'll end now and I would like to thank everybody for taking your time this morning. We look forward to hopefully having some more exciting news in 90 days from now.

Operator, Operator

And this concludes today's conference call. Thank you for participating. You may now disconnect.