According to the latest data, India tops the list as the world’s largest market for inward remittances. During 2012, India received $69 billion in remittances while China came in second with $66 billion. However, despite being the largest receiver of foreign funds, India is still one of the fastest growing markets for global money transfers. Naturally companies that have a huge exposure to the country stand to benefit here, which is why I believe that The Western Union Company (NYSE:WU) is well poised for an upside.
Spectacular times ahead
Although The Western Union Company (NYSE:WU) provides a range of financial services across the globe, its money-transfer services account for around 85% of its total revenue. So it is imperative to track the growth prospects of its core business in the world’s largest market for money transfers.
To begin with, The Western Union Company (NYSE:WU) doesn’t reveal country-specific data, so it’s currently not possible to gauge the regional performance on a quarterly basis. However according to market estimates, it dominates the Indian remittance industry with an 80% market share. Although Moneygram International Inc (NASDAQ:MGI) and Xoom Corp (NASDAQ:XOOM) also remit cash to India, The Western Union Company (NYSE:WU) is ahead of its peers mainly due to its widespread geographical reach, with over 106,000 transfer locations across the country.
The main reason behind India being at the pole position is because the Indian rupee has depreciated by nearly 50% over the last two years. Apart from export- related small and medium enterprises, Indian expatriates in foreign countries have been sending money back to India at a record rate. But I firmly believe that the remittance market will only accelerate from here.
This is because the Indian rupee just crashed to an 11-month low. The Reserve Bank of India has been aggressively purchasing rupee, but to the horror of Indian importers, it has failed to arrest its depreciating currency. If the rupee continues to lose value, it’s only natural that foreign institutions, Indian expatriates and export- related companies start pumping money into India to take advantage of the weak rupee. This will most likely translate into higher revenue for The Western Union Company (NYSE:WU).
Global growth prospects
On the global front, The Western Union Company (NYSE:WU) enjoys a market share of 15% (2012). That may be significant, but definitely not huge. Global banks transfer a monstrous chunk of money. So in order to boost its global market share, Western Union is rapidly expanding its network in China. According to estimates, there are 50 million Chinese citizens living in foreign destinations who will most likely propel China ahead of India in terms of inward remittances over the next five years.
But that’s an industry-wide advantage, which will also benefit Moneygram International Inc (NASDAQ:MGI) and Xoom. However it’s worth noting that Moneygram and Xoom are relatively smaller companies, and can comfortably coexist in a growing market. According to the latest data, Moneygram operates with around 5% to 6% global market share, while Xoom has between 2% and 4% market share.