Western Union (WU) Presses on by Digitizing Payment Processes
Western Union's (WU) focus on growing its digital business and shedding its lower-return generating business poises it well for long-term growth.
Western Union Co. WU is advancing with digital changes in the industry despite having a long history of operating from its brick-and-mortar stores. Its expansive fintech software, which it has been developing and investing in from the past many years, helped it withstand the adversities of the 2020 pandemic.
Western Union’s online business is rampingup fast. Overall, its digital money transfer revenues grew 38% in 2020, crossing the $850-million mark. For 2021, the company is looking to become a $1-billion digital business.
Apart from its digital money transfer on its network, Western Union is monetizing its digital platform by allowing organizations to use it to serve their customers. This is a key component of its strategy to become a more diversified payments company.
Western Union’s evolution from once solely brick-and-mortar format to a hybrid of online and physical store is now paying off. A combination of its cash and digital capabilities will set it apart from the digital-only competitors who are unable to serve a significant portion of the remittance market that relies only on cash.
Its long track record of operations enabled it to build massive cross-border corridors (along which money moves), which for fintechs will involve a big infrastructure spending. This might actually nibble away their profit margins. Thus, Western Union is better placed in the evolving industry. Other fintech players elbowing the company are PayPal Holdings, Inc. PYPL and Square, Inc. SQ among others.
Its age-old reputation of 170 years is easily recognized by its customers and that works to its advantage.
Alongside developing its digital business, the company is parting ways with its lower-return business. To this end, it recently announced the sale of its Business Solutions business to Goldfinch Partners and the Baupost Group for $910 million. With the divestment of this operation, Western Union will focus on penetrating the global cross-border consumer payments market, expanding its digital partnership business and increasing its total addressable market size through its branded ecosystem strategy.
The stock has fared better than its industry as it lost close to 4% year to date, lower than the industry’s decline of 13.5%.
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Another close peer MoneyGram International Inc. MGI has gained 58% over the same time frame.
The stock, which currently has a Zacks Rank #3 (Hold), is a desirable investment option to hold onto owing to its clear growth trajectory and a consistent dividend track record. The company has increased its dividend per share payment over time and it should not deviate from the same on the back of its favorable cash flows. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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