Western Union Looks to the Digital Future After Posting a $355 Million Fourth-Quarter Loss

By Jim Daly
@DTPaymentNews

Westernunion.com, the online and mobile-payment service of The Western Union Co., is still small, but it’s the rising star of the world’s leading wire-transfer company, which posted a $355 million fourth-quarter loss in the wake of a recent $586 million settlement with the federal government over lax anti-fraud controls.

Available in just a handful of countries two years ago, Westernunion.com is now in 37 nations, Englewood, Colo.-based Western Union reported Thursday. Westernunion.com’s consumer-to-consumer revenues increased 27% in the fourth quarter, or 30% on a constant-currency basis, and accounted for 9%, or $98 million, of the total $1.09 billion in C2C revenues. Western Union did not release its online transaction numbers.

What’s more, customers are using Westernunion.com to make more and more mobile payments. In the U.S., 65% of Westernunion.com transactions are coming from mobile devices, chief executive Hikmet Ersek told analysts on a conference call. “The expansion is very fast here,” he said.

Later, when asked about the company’s upcoming online investments, Ersek said “Generally I would say next investments are definitely mobile, mobile, mobile, mobile.”

In contrast, total C2C revenues, which account for 80% of the company’s revenues, were flat against the year-earlier quarter, and transactions increased only 2% to 69.1 million. Principal per C2C transaction fell 2% on a constant-currency basis to $292.

North America, which accounted for 29% of C2C revenues, saw transactions rise 7% in the quarter, second only to the 14% increase in the smaller Latin America and Caribbean region. C2C transactions rose 5% in Europe but fell 9% in the Middle East/Africa and Asia-Pacific regions.

Western Union is facing heavy competition from digital upstarts such as Xoom, now owned by PayPal Holdings Inc., that don’t have the expense of Western Union’s vast network of 500,000 agent locations in 200 countries, as well as competitive pricing pressure in some key corridors, such as U.S. to Mexico.

Still, Ersek and chief financial officer Raj Agrawal said several times that Western Union’s overall pricing picture is stable. Asked by an analyst about the pricing pressure on Western Union from Wal-Mart Stores Inc.’s contracts with its wire-transfer partners MoneyGram International Inc. and Euronet Worldwide Inc., Ersek said “overall I would say … we are stable with our prices. We are still 15 to 20% higher than the competition. The customers who use us are paying for the convenience, for global reach, for the security and for … sending the money, so we feel comfortable with [the] pricing environment.”

Ersek would not comment in detail when asked about Ant Financial Service Group’s recently announced deal to acquire MoneyGram for $880 million. “I feel quite comfortable that we can compete,” he said.

Western Union reported total revenues of $1.37 billion for the quarter, down 1% from a year earlier but up 4% on a constant-currency basis. Transaction fee revenue slipped 3%. The net loss came mainly from a $571 million charge for the government settlement, most of which involved actions by some agents from 2004 to 2012. A year earlier, Western Union posted net income of $212.3 million.

For all of 2016, Western Union reported net income of $253.2 million, down 70% from 2015, on revenues of $5.42 billion, down 1%.

The company has initiated a new internal improvement and cost-reduction plan called “WU Way,” on which it spent $20.3 million in 2016 and plans to spend $100 million this year.