Western Union sees stickier, digital users moving more money during pandemic

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Though the COVID-19 pandemic continues to stifle economic growth globally, Western Union again pointed to its fast-growing digital services as key to keeping the company on a positive trend.

Western Union reported $229 million in net income for the third quarter, a 69% increase compared to the third quarter of 2019, at $135 million. The cross-border money transfer company also delivered third-quarter revenue of $1.3 billion, an improvement over the $1.1 billion the previous quarter and a decline of 4% compared to the 2019 third quarter.

The Denver-based company expects to continue moving forward in the coming months and into next year, eyeing the boost it could get from a potential coronavirus vaccine that would increase migration and spark retail activity, as well as a continued focus on white-label agreements with financial institutions.

The decline in revenue reflects the continuing global economic impact from COVID-19, though that challenge has been offset by improving consumer money transfer options, including digital revenue growth of 45% to a new quarterly high of more than $230 million, Western Union said during its Thursday earnings call.

It was a digital trend that kicked into high gear for Western Union earlier this year, when the company first began to cope with the worldwide pandemic's effect on its bottom line.

As many as 80% of the customers using WU.com are new to the company's services, Western Union CEO Hikmet Ersek said during the call.

Hikmet Ersek, president and chief executive officer of Western Union

"These customers are stickier and stay with us, and they use a higher principal in using their payment cards, and there is a direct connection with loyal customers and WU.com," he added.

Western Union also saw its retail business pick up during the quarter, as digital money transfer revenue represented only 21% of the company's total revenue, but clearly the digital mix has been critical during the pandemic.

"We're still learning in this [digital] environment because people have changed their behavior, as certainly the customers remaining with our business are transacting at a higher level but they also have a higher ability to pay and send money — and they are sending higher principal amounts," Raj Agrawal, executive vice president and chief financial officer, said during the call. "Even the new customers coming into our business are exhibiting the same kind of characteristics."

It is difficult for Western Union to evaluate what the current trend will mean for the post-pandemic market, but customers who are new to Western Union indicate they will continue to use the service, Agrawal said. "Certainly, there is a strong need for the receive markets to continue to receive money," he said.

WU.com's average monthly active customer total for the third quarter increased 47% year-over-year. The company cited marketing firm Sensor Tower figures in reporting that WU was the most downloaded mobile app among peer money transfer companies during the third quarter.

Ersek addressed the possibility of what a coronavirus vaccine could mean for people to begin migrating to other countries again, and thus setting up Western Union to benefit from the money transfers that generally follow international travel.

"We are all for a vaccine, right, as they would make us all feel better about getting to our new normal," Ersek said. "It will be a new normal, but we are confident for the future. We are prepared with our global network and platform, and migration and exports and imports help our business."

Getting back to normal would also mean students are attending universities internationally, sending and receiving money via Western Union, Ersek added. "But it is important how strong our brand is, customers like us and continue to use us, and it shows in how we continue to gain market share."

Western Union also wants to continue moving forward on white-label partnerships with financial institutions, pushing a trend to help banks transition from a correspondent bank network, to the real-time money movement that WU can offer.

"We do have pipelines and some agreements pending with smaller and larger institutions to help our white-label growth," Ersek noted.

More banks are approaching Western Union to inquire about the speed and process of moving money into another country and converting currencies, in part because their current correspondent bank network is "difficult and costly," Ersek said.

This month, Western Union extended its 35-year relationship with Kroger grocery stores in the U.S., giving shoppers access to money transfers through the 54,000 WU locations nationwide. It was a non-exclusive agreement this time, but Ersek said WU has thousands of partners and the growing digital presence offsets any concerns about a non-exclusive agreement with a partner.

"We are operating in many non-exclusive areas anyway, and it's a customer choice and that is Kroger's intention," Ersek said. "I am not worried about that, we are winning in the non-exclusive environment constantly."

Most of Western Union's business and agents are exclusive in nature, except in markets such as Russia and Africa, Agrawal said.

"It's a mixture of different kinds of agreements and ultimately it ends up being a question of economics," he added. "What are the best economics for Western Union and what kind of opportunities do we have, and that is how we make decisions on whether something is exclusive or not."

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Earnings Cross border payments P-to-P payments Digital payments Coronavirus Money transfers