Why Western Union Is Embracing Its White-Label Future

If one were looking for a simple phrase to describe the theme of Western Union’s Q3 earnings report on Thursday (Oct. 31), “pleasant surprises” would probably be the way to go. Western Union (WU) reported adjusted quarterly earnings of $0.49 per share, beating the Zacks consensus estimate of $0.47 per share. The beat represents WU’s first in four quarters.

Revenue came in slightly below consensus estimates at $1.31 billion for the quarter. That is also slightly down from the $1.39 billion WU reported during Q3 2018. The slight revenue dip was explained as largely an outgrowth of FX issues, particularly the strengthening of the U.S. dollar and inflation issues in the Argentine market.

“Third-quarter results were solid, as we produced strong adjusted margins and improved consumer money transfer revenue growth, while completing major actions to advance our new strategy and the restructuring program,” President and CEO Hikmet Ersek said of the Q3 results. “We are focused on executing our long-term strategy, opening our unique cross-border platform for incremental growth opportunities and optimizing our existing businesses, while also generating significant efficiencies and margin expansion.”

The restructuring program was announced at the company’s investor day in late September. The new global restructuring is designed to capitalize on the firm’s unique cross-border strengths to meet increasing demand from global consumers and businesses. Among the main pillars of that strategy is opening up the Western Union payments platform to third-party partners on a white-label basis.

“Other companies don’t have the ability to deal with all the complexity that comes into cross-border money movement. What we can offer them is access to the world overnight, and that is a pretty huge value proposition,” Western Union CFO Raj Agrawal told Karen Webster as the earnings results hit the wires. “We say we can offer them access to all channels – including cash, digital, mobile – in 200 countries worldwide. Or they can try to build all of that on their own.”

When put that way, he noted, Western Union’s open network is far more appealing than an ongoing construction project – which is why they’ve seen such a rapid uptick of interest in their white-label product offering. At investor day, Agrawal pointed out, they announced their progress in Saudi Arabia and Russia – and yesterday they added more names to that list, including Korea and Japan. What they’ve seen so far, he noted, is a lot of pleasant surprises in terms of uptake in interest.

Every market is different, and deal structures vary. The market dynamics have to be right in order for any variation of a white-label offering to succeed. But, Agrawal said, when it works as well as it has in a market like Saudi Arabia, the effects are obvious, fast and powerful.

“Through that partnership with Saudi Telecom, we’ve had better results in the Middle East region than we’ve had for a couple of years,” Agrawal noted. “Not only has it been better than we expected, it’s also been a huge learning experience. Now we want to get another 50 of these partnerships up and running worldwide. We are very ready for the firms that want to talk to us.”

All of those partnerships represent an incremental growth opportunity for Western Union in the digital side of its business, said Agrawal. This is a big world that is growing fast, with lots of need to move money seamlessly across borders in many, many contexts. Western Union is ready to fill that need, Agrawal claimed – whether in their own branded business or via white-label partnerships. He pointed out that there is more than enough global business in this arena, which means it makes sense for Western Union to work to capture it in both a branded and non-branded way.

The economics of the offering are different, he noted, but profitable. And white-label business – which largely takes customer acquisition costs off the table and relocates them to their partner – is a high-margin business that Wester Union is ready to pursue. By 2022, the company is targeting an operating margin of 23 percent.

“We built the capability and will continue to enhance it when it comes to moving funds cross-border,” Agrawal said. “But we know that in this competitive market, if we don’t get out there and offer up those capabilities, someone else may very well show up and try to do it instead of us.”