Western Union (WU) Strong on Digital Arm, Business Rejig

At a time when remittance volumes across the globe have weakened due to COVID-19, Western Union Co. WU is trying to stay afloat with investments in its digital platform and business streamlining.

The company’s revenues have been under pressure over the past many years due to rising competition. Grappled with this, it prioritized investment in its digital money transfer arm as a key strategy to achieve long-term growth.

In fact, substantial work done on the digital front enabled this payment processor to tide over the ongoing difficult operating conditions posed by COVID-19. In the first, second and third quarter of 2020, WU.com saw respective 15%, 45% and 47% growth in average monthly active customer base. Also the September quarter saw the Western Union app getting downloaded maximum number of times by its customers compared with its peers. The company’s digital business provides incremental growth and attractive economics.

The company is also trying to transform itself into a leaner and more agile organization, and to this end, it sold its Speedpay business to ACI Worldwidefor $750 million. It also disposed its Paymap mortgage payments services business. With divestitures and smaller domestic money transfers, the company’s business is now primarily focused on cross-border services for consumers, financial institutions, banks and other businesses. The company presently concentrates on its core competencies in foreign exchange, cross-border settlement, compliance and global retail and account payout network.

Western Union started implementing its new Global Strategy, designed to drive efficiency, profitability and long-term revenues. Its several initiatives target operational excellence and are expected to save approximately $50 million in 2020. The company also intends to achieve a three-year goal of $150 million in addition to providing surplus funds for reinvestment in business growth.

These strategic actions are likely to sustain the company amid a globally weak remittance market. At April-end, the World Bank issued a forecast projecting 20% decline in global remittances for 2020. This downside will weigh on the company’s overall revenues.

Notably, both Consumer-to-Consumer and Business Solutions segments are under pressure. Total revenues dipped 4.3% in the first nine months of 2020.    

In six months’ time, the stock has lost 0.6% against the industry’s growth of 6.4%. However, other stocks in the same space including MoneyGram International Inc. MGI, Square Inc. SQ and PayPal Holdings, Inc. PYPL have rallied 113.1%, 119.6% and 35.6%, respectively.

Western Union carries a Zacks Rank #3 (Hold), currently.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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