The quarterly earnings of Western Union, MoneyGram and Ria all made for pleasant reading this past week; the first time this year. What’s beneath the surface of this uptick?
Revenue swung back in all three businesses. The big drivers of this are:
- Digital is everyone’s favourite story line
Digital numbers look good across all three businesses, with year-on-year growth for the quarter up 45%, 95% and 126% for Western Union, MoneyGram and Ria respectively as customer behaviour changed through the pandemic. It is worth remembering, though, that digital for these players typically means debit card pay in, cash pay out (mix analysis here).
Where are all these new digital customers coming from? Banks and smaller traditional cash-based players.
- Digital customers are new and have higher retention rates
WU claims that 80% of its digital customers are new to the company. MoneyGram sees similar numbers. For both players, the economics of digital are holding up (similar to offline) with less pricing pressure than may be expected.
The entire growth of both companies is coming from their digital arms with their cash to cash segments (c. 70% of overall revenue) declining 9% at Western Union and 5% at MoneyGram for the quarter (year on year).
Plus (unsurprisingly to all the digital-first players), a customer who can use their mobile to make the transfer sitting at home has a much higher retention rate than those of a physical agent, even with all the price comparison shopping that is done. That massively helps the lifetime profitability of digital customers.
- Agent exclusivity is reducing
Cash pay-in still accounts for c.70% of these three businesses. And other players are following Walmart’s lead in opening up their locations to competition – the latest being the large Kroger supermarket chain in the US. Long a WU stronghold, Kroger now supports Ria as well. Walmart was historically 20% of Ria’s business but is down 40% this year. Competition in the supermarket super-agent segment is material.
Overall, quarter three all sounds pretty positive, right? Not entirely, if you follow the World Bank’s latest forecasts for the sector.