As Western Union agents locked down, new users flocked to digital

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Western Union confirmed yet again that for a payments company to survive the coronavirus pandemic, it needed to enter the crisis with a strong footing in digital payments.

But the pandemic still took its toll on the bottom line, and revenue still fell during the Denver-based company's second quarter.

Western Union reported revenue of $1.1 billion in the quarter, a 17% drop from a year earlier, or 11% on adjusted constant currency because of lower transaction levels during the pandemic. However, digital money transfer revenue rose to $220 million, an increase of 48% on a reported basis in the quarter, or 50% on constant currency.

"The world is in a different place since COVID-19 started, but these customers are new to us and digital customers stay with us," Western Union CEO Hikmet Ersek said during the company's Tuesday earnings call.

Its net income fell 74%, to $161.9 million, from $614.8 million a year earlier. The combination of a growing digital channel — and the sheer number of Western Union agent locations, at 500,000 — combined to provide enough scale to carry the company through the difficult quarter.

"The world is in a different place since COVID-19 started, but these customers are new to us and digital customers stay with us," Western Union CEO Hikmet Ersek said.
"The world is in a different place since COVID-19 started, but these customers are new to us and digital customers stay with us," Western Union CEO Hikmet Ersek said.

"When you look at our business, we are moving money cross-border and cross-currency, and we have a huge platform to move that in 200 countries and our digital-send function is in 75 countries," Ersek said. "Nobody else has that, to my understanding, worldwide. In 2019, we already had $600 million revenue (in digital), so we are growing from a huge base already."

Digital revenue and transactions represented 22% and 31% of the C2C business for the quarter, respectively. Within the digital money transfer business, westernunion.com revenue increased 33% on a reported basis and 34% on a constant currency basis, including cross-border revenue growth of 48%.

A major trend that bodes well for Western Union is that 80% of new customers on WU.com are entirely new to the company, Raj Agrawal, executive vice president and chief financial officer said during the call.

"These customers have not used us in the past couple of years, so it's largely a new customer," Agrawal said. "They are new to this category, and haven't used money transfer before or haven't identified themselves in that way, or they are coming from other parts of the remittance market, maybe from the banks or other digital players."

New digital customers have tended to be high-quality customers, sending high transaction amounts and continuing to use Western Union beyond just their initial transactions, Agrawal added.

How effective the mix of physical retail and digital services will be in the coming months will depend on how quickly retail can come back during the pandemic, Argawal said.

"Digital is driving a lot of the growth and recovery here, but it is also coming from recovery in retail," he added. "Digital has stayed in the 100% range the past few months, but retail is gaining back to where it was before."

Overall, the company reported an operating margin for the quarter at 19.9% compared to the 19.3% for the previous year, citing productivity savings and cost management measures "that more than offset the impact of revenue declines associated with COVID-19 and the 2019 divestitures."

The executives did not address the widely reported potential acquisition of MoneyGram during the earnings call. Western Union and MoneyGram executives have not publicly discussed a possible merger since reports on that possibility first appeared two months ago.

If it were still in play, a merger of the companies would provide more power in numbers to combat the coronavirus effects and move digital channels forward. MoneyGram has 350,000 agent locations worldwide.

Though MoneyGram reported a loss of $4.6 million for its second quarter last week, it also touted its digital transaction growth as a key factor in helping the company navigate the first months of the COVID-19 pandemic. MoneyGram reported a 106% digital transaction growth for the quarter compared to the prior year, while noting digital now accounts for 27% of all of its money transfers.

Earlier this year, Western Union touted its online strategy as one that was helping the company overcome political unrest in some markets and helping the company report $1.3 billion in revenue in the last quarter of 2019. It was still a 7% decrease from the prior year, but a 3% increase in adjusted constant currency terms.

Western Union continued a similar path in the first quarter of 2020, generating $1.2 billion in revenue, about an 11% decline from the previous year.

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Earnings Coronavirus Western Union Remittances Cross border payments Digital payments
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