From Western Union To MoneyGram, Remittances Defied The Pandemic And Came Back Stronger

When the world was still coming to grips with the pandemic in April 2020, the World Bank issued a report predicting a 20% drop in global remittances. It was a difficult prediction to make, but it was based on sound reasoning: migrant workers were seeing significant wage cuts, and certain migrant-heavy industries were closing down completely.

However, a year later, the World Bank confirmed what the industry had already recognized: the impact, while significant, was nowhere near as severe as initially anticipated.

While all but Intermex of the big four remittance companies – WU, MoneyGram MGI, Intermex, and Ria owner Euronet – saw a drop in Q2 2020, this began to recover in the following quarter, with all returning to 2019 levels of growth by the start of 2021, if not sooner. Western Union was the hardest hit (due to its exposure to international markets), with a year-on-year revenue decline of around 12% in Q2 20, while Intermex (US outbound driven) saw growth of around 4% rather than the low teens seen in the preceding quarters.

Following the onset of the pandemic, the World Bank confirmed that 2020 remittances were down only 1.6 percent from 2019 – a significant improvement over the 2020 forecast.

All four have reported strong numbers in the most recent set of results, Q2 2021, with many outlining ambitious plans for future growth. So, what exactly happened? And how will the industry evolve in the coming quarters?

Remittances outperformed the pandemic in the face of adversity.

Looking at the earnings numbers for the last few quarters reveals that, while remittances as an industry saw only a minor contraction compared to early forecasts, there were fairly significant changes in behavior.

While some customers were unable to send money during the worst of the pandemic, those who could changed the amount they sent, resulting in an increase in cross-border principal for market leader Western Union.

“The customer is sending a higher principal amount because they are the ones with the ability to send, and their recipients need money more than ever before,” Western Union CFO Raj Agrawal told me after the company announced its FY 2020 results.

Intermex CEO Robert Lisy, whose company primarily serves blue-collar workers in the United States who send to Latin America, also stated that stimulus checks played a role, either directly or indirectly through people simply having more money to send or because they were getting more work from an uptick in home renovation projects.

“Along with that, there's a bigger need because the recovery and Covid relative's seriousness and economic damage in some of our receiving countries is much bigger and stronger than even in the US,” he added in a conversation following the company's Q2 2021 earnings.

Revenue growth in the consumer remittance segment for the quarter, 2018-2021

While all four of the leading remittance companies, Western Union, MoneyGram, Intermex and Euronet, saw some impact from the pandemic, it was much less severe than initially expected

The transition to digital

Along with an increase in the amount sent, many customers changed the way they sent remittances during the pandemic, with social distancing prompting a shift away from retail outlets and toward apps and other digital options. This also resulted in an increase in account-to-account transfers, which reduced the amount of cash involved even further.

“The lockdowns, closures, and displacement in the retail space from Covid across the board are really forcing a lot of customers to try new things,” MoneyGram CEO Alex Holmes explained following the company's Q2 2021 results.

“During the corona-virus, something like 70% of people over the age of 65 tried an online application for the first time because they didn't have an alternative. During the virus, 35% of people switched to digital sources, which they had never used before.”

This shift coincides with a broader trend toward digitalization in the space, with all of the major remittance companies forecasting increased use of non-cash send or receive in the future.

Some have gone further than others, with MoneyGram aiming for 50% digital by 2024. However, while there is a trend toward increased digital remittances, the industry is far from out of the woods.

“Obviously, a large portion of the world's economy still operates on a cash basis. People are paid in cash; they carry cash with them; they trade in cash,” Holmes added.

“There is still that cash society that continues to dominate so many markets, and I don't think it will disappear overnight. It will be a slow trickle that will fade.”

Onwards and upwards: MoneyGram, Western Union and Intermex’s future plans

The most recent quarter's emphasis was largely on future growth, with the remittances industry attempting to capitalize on a changed, post-pandemic world. Each of the major four has a different approach to this, but they are all united by ambitious goals.

While MoneyGram is focusing on increasing its digital share as it rebuilds its retail business in the post-pandemic era, Euronet is looking beyond remittances to opportunities in the wider payments industry. It intends to combine the capabilities of its Ria and XE brands in order to compete in the multi-trillion-dollar international payments market via a variety of approaches, including C2B payments.

Meanwhile, Western Union is refocusing on its consumer business after selling its B2B division, Western Union Business Solutions. In what Agrawal refers to as a "consumer ecosystem opportunity," it will pursue a mix of white label and direct consumer offerings, as well as a suite of broader financial services for its customers, beginning with a multi currency bank account.

“The nine million consumers who use WU.com on a transactional basis are from last year. They trust us; they know the Western Union brand; and they know what we're capable of,” Agrawal explained following the company's Q2 earnings announcement.

“So it's not a big stretch to now add more branded offerings to the portfolio of services that we're offering our branded Western Union consumer.”

Intermex, on the other hand, is continuing to develop its omnichannel strategy, which served it well during the pandemic, with the goal of expanding both in the US and abroad – and it has $100 million in cash waiting for the right acquisition to help it.

Around a year and a half after the initial dire warnings of the pandemic, remittances are in a very good position for the future.

Source: Forbes.