Western Union (NYSE:WU) reported 3rd quarter 2013 results this week beating analyst estimates, reporting earnings of $1.4B and $0.39 per share. Income decreased 20% over the prior year as margins continue to be squeezed due to the impact of transaction fee pricing reductions implemented to maintain competitiveness and increased regulatory compliance costs. Notable this quarter, Western Union reports the highest consumer-to-consumer growth rate in three years with electronic channel transactions now representing 5% of total revenues, possibly an indication of an increased tech savvy-ness of its consumer base.
While lowering fees in certain geographies seems to have spurred an increase in transaction volume, Western Union has a long way to go in returning to performance levels seen just a year ago. The average consumer-to-consumer transaction at Western Union is $339. A breakdown of reported transaction fee revenue this quarter approximates to about 6.5% per transaction, or $22 on that $339 transaction. With virtual currencies such as Bitcoin facilitating money transmittal for an average transaction fee of $.02 per transaction, regardless of size - could this spell the end of the traditional money transmitter business?
Currently valued at $200USD per Bitcoin, the crypto-currency has developed real traction in recent years as government regulators such Germany's Finance Ministry have begun to recognize Bitcoin as legitimate tender - clearing the path for its taxation. The currency is decentralized and out of control of any central bank, affording it increased security against currency manipulation and devaluation - crossing borders without incurring an exchange fee with the speed and ease of sending an email.
Bitcoin can provide the ease of use, low cost, and arguably increased security all without an intermediary - without Western Union. Bitcoin provides a viable alternative for emerging markets, whose banking and financial infrastructure is damaged or not in place. With $414B sent from migrants to home countries this year (World Bank), Western Union is simply too little too late to remain competitive in today's marketplace. This week's earnings announcement echoed the same, operating profit to remain flat in 2014.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.