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Western Union Company (WU)Stock (Financial Services Industry, Personal Services Industry, Services Industry)
 The Western Union Company (NYSE: WU), along with its Orlandi Valuta, Vigo and Pago Facil affiliates, leads the global money transfer industry with a 17% market share. The company processed a total of 396 million money transfer transactions in 2006 – about 5 times as many transactions processed by its nearest competitor – Moneygram International (MGI). With almost 3 times as many agent locations as Moneygram, Western Union - 305,000 walk-in agent locations in total- is a convenient choice for the money transferring needs of the large migrant populations of the world. By the end of 2006, Western Union had generated 4,470.2 million in revenue, a 12% increase over 2005, but only 914 million in net income, a 1% decrease over the previous year. The increase in revenue comes primarily from transaction fees in the growing transaction volumes of Western Union’s two primary business segments: Consumer to Consumer and Consumer to Business. Western Union processed 147 million C2C transactions in 2006 and 249 million C2B transactions, a 24% and a 16% increase over 2005, respectively. The decrease in net income is the result of added operating expenses to Western Union, including expenses made in connection with its Spin-off from First Data (FDC), and negative publicity related to the ongoing debate on immigration reform. Western Union’s transaction growth and market share opportunities are sensitive to the migration patterns of immigrants all over the world, who seek economic opportunity and then a means to send money back to their families in their home countries. Some of these immigrants are residing in the US illegally and could be subject to deportation. Western Union faces competition from US banks and online money transfer companies. Advances in technology allow them to offer their services at much lower prices than Western Union. Banks facilitate money transfer through inter bank wire transfer or through ATM machines. Online money transfer companies also represent a growing source of competition.
[edit] History The Western Union Company was first launched in 1851 as a telegraph company and began trading on the New York Stock Exchange in 1865. It provided services in the business of telegrams until 2006. In 1861, it completed the first transcontinental telegraph line, introduced the universal stock ticker in 1866, and launched the first US commercial communications satellite service. First Data Corporation acquired WU in 1995, but spun-off WU in September 2006. Western Union is now an independently owned, publicly traded company headquartered in Englewood, Colorado. It is the leader in the money transfer industry and has experienced a steady rise in total consolidated revenue over the past few years while increasing its market share from 10% to 17% in just the past 3 years. [edit] Business Overview[edit] Consumer to Consumer In Consumer to Consumer transactions, consumers use third-party agents located all over the world to send money to other consumers instantaneously. Traditionally, consumers have walked into an agent location, filled out a form specifying the name and address of the recipient, and paid the principal and the determined transaction fee. The sending agent enters the data into the data processing systems, and in a few minutes the money sent would be readily available for payment to the recipient (for free) at the designated receiving area or country. Consumers in the US may now use a debit card to access funds to send from many agent locations. In some areas, a Direct to Bank Service is available, allowing the transaction to be sent directly to a bank account in another country. In other countries, WU offers pay-out options (to the recipient) through a money order, debit or stored value cards. WU’s website westernunion.com allows the consumer to send money online, using a credit card or debit card, for pay-out in an agent location anywhere in the world. The “Money Transfer by Phone” service, available at select agents in the US, gives one the choice of using a phone at an agent location to complete a transaction by giving the representative on the phone the required information, and then receiving a transaction number to give to a sending agent. Or, through the Telephone Money Transfer service, consumers can bypass the agent location altogether, call a toll free number in the US or UK, and use a credit or debit card to initiate a transaction. [edit] Consumer to Business.PNG) In consumer to business money transferring services are offered to consumers who wish to pay their bills to various organizations. Sometimes governmental agencies (or billers) initiate transactions as well. The Consumers or billers make the electronic transactions over the telephone or internet, via the Speedpay service, using the consumer’s credit card, debit card or bank account. Cash payments are made in the same way as consumer to consumer transactions, using the Quick Collect service (or smaller Convenience Pay service), by paying in cash, or in select locations, using a debit card, at an agent location. Transaction fees paid in consumer to business transactions are typically less than the fees paid in the consumer to consumer transactions. Consumer to consumer transactions, although accounting for a lesser fraction of total transactions, made up a staggering 84% of revenue in 2006 as compared to only 14% by the C2B segment. [edit] Revenue Sources[edit] Transaction fees
[edit] Foreign ExchangeWestern Union also makes money by adding a premium to the foreign exchange rate. For instance if the dollar is equal to 10 pesos at the time of a particular transaction, the customer will only get 9 pesos per dollar. WU will retain the remaining peso as revenue. Foreign Exchange revenue made up 15% of revenue in 2006, totaling 653.9 billion in revenue, a 23% increase from 2005, and a 41% increase from 2004. [edit] OtherOther services provided by Western Union, and giving the company 2% of its total revenue in 2006, include the sale of Western Union branded money orders, and the sale of prepaid services, enabled by third parties, such as the Western Union branded prepaid card and top-up services that allow the consumer to pay in advance for mobile phone and other services. The gold card rewards program allows the consumer to earn "points" on their transactions, rewarding them with free telephone minutes or savings on future transactions. The gold card program was initiated as an incentive for Western Union's customers and has grown to include 8 million consumers last year from about 1.5 million in 2003. [edit] Consumers Western Union’s increasing business and market share opportunities are correlated to the increasing numbers of its primary consumer—the migrant population. As immigrants move around the globe, seeking better opportunities in wealthier countries, they leave behind family in their country of origin and often need to send money back home. The immigrant population of 190 million, 38 million in the US alone, creates the need for a global remittance program, which can conveniently provide them with a network of outside agents who will distribute their hard-earned money to their families all across the globe. This includes about 12 million immigrants of Hispanic origin who do not have the documentation to open up bank accounts, and are forced to use the services of companies such as Western Union. Western Union is essentially providing services to the unbanked population: about 30% of senders and 80% of receivers. Ninety percent of C2C transactions in 2006 were still traditional walk-in cash-based payments at an agent location. [edit] Trends and Forces[edit] RegulationIncreased anti-money laundering laws and anti-terrorist financing regulations in the US and abroad have caused the money transfer industry to be heavily regulated. Governmental Entities require that money transfer companies, banks and other financial institutions to develop systems to monitor and report certain transactions. This regulation adds to Western Union’s business costs and is causing many banks to refuse to provide services to money transfer agents that could be used to expand Western Union’s agent network. [edit] ImmigrationWestern Union’s existence is dependent on the existence of a moving migrant population all over the globe, and the sharpened focus on immigration reform in the US could negatively affect its business. The vast majority of consumer to consumer transactions (70%: 62% international and 8% Mexico) are international transactions made by immigrants sending money back home to their families in their home countries. However, over half of C2C transactions do not have any contact with the US, and are transactions sent by migrants all over the world. Yet some of the US immigrants are illegal immigrants working in the US who seek to avoid deportation. In 2005, Arizona's attorney general sought to seize the funds for a number of WU's transactions, under the premise that they were meant for smugglers of illegal immigrants. This crackdown occurred in the context of a broader debate on immigration. The President and Congress have been negotiating legislation since 2006 wavering back and forth between laws strengthening security borders and laws including provisions for "guest worker programs" for undocumented workers, essentially allowing them to work towards legalization. A comprehensive immigration reform legislation package is still pending. New laws meant to curb the influx of immigration into the US could negatively impact Western Union's business. The immigration debate has caused some consumers to distrust a highly profiled company such as Western Union, believing that Western Union transactions would be used to track down illegal immigrants, and this in turn has adversely impacted US domestic businesses and the US to Mexico corridor. The US to Mexico corridor is one of Western Union's largest segments (accounting for 10% of revenue in the C2C segment), but in 2006, it saw an increase in transactions of only 6%, as compared to the 26% increase in the same period of the previous year. [edit] ExpansionIn the last 2 years Western Union has made several acquisitions to fuel its international expansion. In 2006 Western Union acquired SEPSA (Servicio Electrónico de Pago S.A) a leading provider of money transfer services in Argentina with 3,300 locations. In 2005 Western Union acquired Vigo -3,700 locations, 47 countries. [edit] Electronic EraWestern Union already faces strong competition from billers or third party networks offering cash-based bill-payment services in their own names or in their “host’s” name. And recently, as consumers in the US and other countries grow more comfortable with other electronic means of payment, Western Union will face competition in electronically-based methods of payment such as the telephone and internet. [edit] CompetitionWestern Union still faces much competition in the consumer to consumer segment from various smaller rivals. MoneyGram is its only real competitor. Ironically, Moneygram and other competitors offer money transfer transaction fees that are much lower than Western Union’s, and yet consumers tend to go for Western Union. Western Union has been forced to lower fees recently in hopes that growing transaction volumes will make up for the loss of revenue. Other competitors include regional money transfer providers, such as DolEx, GroupEx, Sigue and Ria Envia, that compete with Western Union in a small group of corridors within one region, such as Central America, South America, North America to the Caribbean, or Western Europe to North Africa. Coinstar (CSTR) also offers global money transfer services that compete with Western Union. US Banks have long established relationships with Mexican Banks. More recently they began providing Mexican immigrants who possess matricula Id cards (from the Mexican Consulate) with a cheaper way to transfer money through the banks’ ATM networks or through wire transfers. Since 2001, BAC has bought into Grupo Financiero Santander-Serfin, Citigroup owns Banamex, Wells Fargo has a working relationship with Bancomer, and 150 financial institutions have followed in their footsteps. Competition with banks for the immigrant population is pushing prices for money transfer down, as banks continue to offer services at reduced rates. Moreover, the Federal Reserve Bank has established a relationship with Banco de Mexico, Mexico’s Central Bank. Via its “Directo a Mexico” remittance program, the Federal Reserve encourages commercial banks to make money transfers for Mexican workers (legal or illegal) through its own automated clearing house, provided that they have some type of Id given to them by the US government or Mexican Consulate. This will allow transactions priced as low as 2.50 a transfer (in comparison with Western Union’s low but double digit prices), reserving .67 a transfer for the Federal Reserve. This method of money transfer still has a long way to go before it gains acceptance among the broader Mexican consumer base. Other forms of money transfer include those made through the mail, human carriers, cell phones, online money transfer services and card-based options, such as ATM and stored value cards. Online money transfer companies such as Moneygram’s Moneygram.com, Ikobo and Paypal all offer lower fees than Western Union. Paypal is a free money transferring service done via email offered to consumers with a bank account or a credit card, and is the prominent form of payment for online purchases. In the consumer to business segment, competition has arisen from billers, financial institutions, or other third-party providers of services. Through their own or “hosted” walk-in cash-based payment locations, or through electronic services (via telephone, online, card-based options), these competitors pose a risk to Western Union’s money transferring business.
Note that Western Union reached its 300,000th agent location in March 2007.
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