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3 Key Learnings From Western Union's 2020 Annual Report

  • Currency exchange giant Western Union announced strong revenues in its digital money transfer segment in 2020 despite the COVID-19 pandemic;
  • This comes as most other business segments continue to shrink, according to the company's fourth-quarter and full-year results for 2020;
  • Western Union appears to be weighing itself up against competitors in the online money transfer industry, further hinting toward a broader-scale shift toward the internet for global remittances;
  • According to the report, Western Union also saw its highest-ever principal and principal per transaction in 2020.

In total, the Denver-based company saw a 38% jump in revenues for its digital money transfer business in 2020, bringing the figure up to US$850 million. Western Union is expecting its digital money transfer segment to break the US$1 billion revenue mark in 2021, according to company forecasts for the year ahead.

"As we begin 2021, uncertainty remains elevated but we are optimistic that business will continue to improve gradually, with expectations that our digital revenues will reach approximately $1 billion in 2021," explained President and CEO Hikmet Ersek.

Ersek also hinted at Western Union's shift toward marketing its digital transfers. "In addition, we have a compelling strategic agenda that should position us to expand our offerings and markets to drive profitable, long-term growth that we believe will create value for shareholders," he added.

Western Union's report comes at a time of major disruption to the global flow of remittances amidst the COVID-19 pandemic. According to the report, the company saw a 1% decline in total revenue compared to 2019 on a constant currency basis — a decline attributed to the "ongoing macro-economic impact" of the pandemic.

With ever-shifting industry dynamics at play, what does Western Union's 2020 report tell us about the company's future?

Learning 1: Western Union Is Poised To Pivot To Digital

Based on its annual results, it's becoming increasingly clear that Western Union is banking its future more and more on the realm of digital money transfers, and less and less on the realm of its (albeit still vast) in-store consumer and business services.

For example, digital money transfers contributed to one-fifth (20%) of Western Union's total customer-to-customer (C2C) revenues in 2020. As recently as 2015, however, this segment contributed to only 6.3% of total C2C revenues. This trend hints at a vibrant and rapidly-growing business segment in digital transfers.

And it's not only revenues that appear to be growing with respect to digital transfers, but total transactions too. Although they contributed to slightly more than a fifth of total revenues (21%) in Q4 of 2020, the digital money transfer segment made up almost a third (32%) of total transactions at Western Union over the same period.

In addition, they accounted for the following three key growth figures with respect to consumer and transaction numbers at Western Union in 2020:

  • A 25% increase in principal transferred per customer;
  • A 12% increase in the number of transactions per customer;
  • A 29% increase in the total number of customers using the Western Union website to transfer money.

Western Union defines digital money transfers as those that go through its website, its mobile app, or other applications hosted by "third-party white label" or "co-branded digital partners".

Aside from the numbers, another key factor hinting at Western Union's gradual pivot toward digital money transfers is that the company sees marketing these services as a major near-term strategic objective. According to Western Union's webcast presentation announcing its 2020 report, “[d]igital customer acquisition is currently a top marketing priority” at the company.

Strong growth in digital transfers isn't the only clue that Western Union is gearing up toward a pivot. So too is the marked decline in other business segments. According to its annual report, revenues for Western Union's business solutions segment decreased considerably by 11% on a constant currency basis, while the company's overall slumped by 1%.

If these trends are anything to go by, it seems likely that Western Union will slowly adapt to become a multi-faceted money transfer operator with an increasingly large presence in the online transfer realm.

Learning 2: Western Union Is Considering Its Competitors

While it's clear that Western Union is placing more of an emphasis on its digital money transfers, it's less clear how well it will fare in an increasingly well-established market.

Rather intriguingly, Western Union evades all reference to MoneyGram, its closest competitor and the business with operations most resembling its own. Instead, Western Union appears to focus its attention on companies operating exclusively in the online money transfer realm, including TransferWise, Remitly, WorldRemit, and Xoom.

To this end, while Western Union doesn't reference its competitors by name, it does make specific reference to the following facts in its annual report:

  • A 49% increase in average monthly active customers on Western Union's website for Q4 2020 compared to Q4 the previous year;
  • The Western Union mobile app was the most downloaded mobile app among its competitors;
  • The Western Union online service is available in over 75 countries and territories.

Indeed, Western Union does appear to take the lead when it comes to revenues accrued on online money transfers. With total revenues for this segment standing at US$850 million in 2020, the company holds clear water ahead of competitors such as TransferWise, with revenues of US$418 million in 2020, and WorldRemit, with revenues of US$280 million between mid-2019 and mid-2020.

For reference, MoneyGram — which saw arguably even more robust growth in its digital money transfer segment in 2020 — reported annualised revenue of US$213 million based on figures from Q3 2020.

Interestingly enough, Western Union does seem to be keeping a close eye on its competitors in the online money transfer industry, even going so far as to suggest that the search volume for their brand name on Google indicates that they were the "leading industry brand extending to digital." According to an investor relations presentation from September 2019, Western Union claimed 60% of the brand share on Google search, comparing themselves directly to MoneyGram, TransferWise, Xoom, and Remitly.

Learning 3: More Money Is Being Sent Per Transfer

Intriguingly, Western Union saw its highest-ever principal and principal per transaction in 2020, according to its annual report. The company reported an increase in cross-border principal of 13% for the year when adjusted for constant currency. Its total principle also reached US$96.1 billion. Although the absolute number of transactions making up that principal amount remained flat at around 290 million, Western Union saw a 10% increase in principal per transaction year-over-year, when adjusted for constant currency.

However, the company did not allude to whether or not any reduction in its pricing concerning its global C2C margin (i.e. its transfer fee and exchange rate margin) had impacted the digital growth trends.

Data from Monito's real-time comparison engine provides a clue. By delving into the pricing displayed on millions of independent searches over the past two years, we found that Western Union offered the cheapest online bank transfer of all providers involving transfers from the United Kingdom on 16.14% of searches in 2020 — up nearly 300% from 4.04% in 2019.

This trend also seems to bear out for the cheapest cash-pickup transfer providers from the UK. According to Monito's search data, Western Union was the most affordable provider on 17.91% of cash-pickup searches in 2019, which rose more than 20% to 21.88% in 2020.

Byron Mühlberg

Source: monito.com