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Western Union Expands in Mexico

Zacks Equity Research

In an effort to expand its presence in Mexico, Western Union Co. (WU) has launched Western Union global money-transfer services in collaboration with Farmacias Guadalajara, a Mexican drugstore chain. Through this facility, Western Union will provide its money transfer services in 1,100 drugstores and retail locations spread across Mexico.

The region accounts for around 4% of Western Union’s revenue. It is one of the major receive locations. Receive locations have large inbound remittance markets. The company has been operating in the Mexico corridor for more than a century.  Although, Mexico accounts for a significant amount of the company’s annual remittance volumes, the region has witnessed regulatory hurdles.

In fourth quarter 2013, Mexico-based revenue was flat, despite a 20% year-over-year increase in transactions owing to the company’s pricing initiatives in the region. Western Union lost 7,000 locations or approximately 40% of the Mexican network in the third quarter of 2012 as certain Vigo-branded agents did not comply with new requirements and system conversions.

In Jan 2014, Mexico remittances rose an impressive 8.0% year over year, providing a strong start to the year. The U.S.-Mexico corridor is one of the largest remittance corridors, which accounts for approximately 12% of total transactions at Western Union. Transaction volume grew to 5.50 million in Jan 2014, up 7.6% year over year, which was the eighth consecutive month of yearly transaction growth.

We expect the recent improvements in Mexico remittances to continue due to the improving U.S. economy. An improving economy will attract more migrant workers, which will increase demand for remittance. In order to reap benefit from the improving industry environment in the region, Western Union signed approximately 10,000 new locations in Mexico during 2013, which are expected to become active in the next 12 months and will more than double its network in the country.

Another money transfer company Xoom Corp. (XOOM) has significant operations in Mexico. Mexico’s vast remittance market has also caught the attention of Western Union’s close peer Moneygram International, Inc. (MGI). The company offers its services in the Mexican market in partnership with Visa (V).

Western Union currently retains a Zacks Rank #3 (Hold).

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