Western Union, the 160-year-old money transfer and payments company, operates across 200 countries and territories through 450,000 agents. Its consumer customers are largely migrant workers sending earnings back to their family in their home country. So changes in employment levels worldwide, tighter government controls on immigration, political unrest, and exchange-rate instability can all have a substantial effect on the company’s earnings.
But Western Union’s global scope is also a big benefit. While unemployment in the United States has been persistently high, the World Bank recently increased its forecast for remittances in developing countries to $349 billion, and estimates volume of $404 billion in 2013. Indeed, there are still plenty of greenfield opportunities for Western Union: other than the United States, no one country represents more than 6% of the firm’s top line.
In addition, Western Union is developing channels in online and mobile money transfer, stored value cards, and business-to-business payments. To broaden its reach in the market for cross-border payments between small and midsize enterprises, for example, in June the company announced the purchase of the global business payments division of Travelex Holdings Ltd.
CFO recently spoke with finance chief Scott Scheirman about the favorable and unfavorable trends for Western Union and how the company manages a laundry list of risks. An edited version of the interview follows.
Despite high unemployment in the U.S. and elsewhere, long-term global economic trends are in your favor in some ways.
As we look at the macro trends, we firmly believe the income gaps between developing and developed countries — what you can earn in Italy versus Romania, or in the U.K. versus China, or in the U.S. versus Mexico — are huge. You might earn $10 a day in one country when you can earn $10 to $15 an hour in the U.S. or in Italy. So we believe that income gap is going to be wide for decades. And the other factor we see is aging populations. In parts of Europe and Russia, populations are aging, and migrants are going to have to continue to come to those countries to perform services.
Which countries present the largest opportunities?
China, India, and the Philippines are huge “received” markets, meaning their citizens are migrating to other countries to earn money to send back. Between India and China combined, we have a bit over 100,000 locations for 2 billion–plus people. In the U.S., we have a bit less than 50,000 locations for about 350 million people. So we see some really nice growth opportunities still in China and India, as examples. Brazil is another market we’re very interested in. We just received our banking license [there]. It will allow us to do bill payments, offer prepaid cards, and handle payments for small-business owners.
But I would also say we see growth in Europe. We just completed the acquisition of one of our superagents, Angelo Costa, which does business in 10 countries throughout Europe. And a regulatory change called the Payment Services Directive, or PSD, will benefit us. In France and Germany up until about 18 months ago, we had to do business through banks and post banks. Now we can sign up retailers in France and Germany. Retailers are in the neighborhoods where our customers live and work, and they tend to have extended hours of operation and may be from the customer’s home country.