Western Union 2007 Annual Report Download - page 22

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WESTERN UNION 2007 Annual Report
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Management’s Discussion and
Analysis of Financial Condition and
Results of Operations
You should read the following discussion in conjunction with
the consolidated fi nancial statements and the notes to those
statements included elsewhere in this Annual Report. This Annual
Report contains certain statements that are forward-looking
within the meaning of the Private Securities Litigation Reform
Act of 1995. Certain statements contained in the Management’s
Dis cussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements that involve risks
and uncertainties. The forward-looking statements are not
historical facts, but rather are based on current expectations,
estimates, assumptions and projections about our industry,
business and future fi nancial results. Our actual results could
differ materially from the results contemplated by these forward-
looking statements due to a number of factors, including those
discussed in other sections of this Annual Report. See “Forward-
looking Statements.”
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Overview
We are a leading provider of money transfer services, operating
in two business segments:
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Consumer-to-consumer money transfer services, provided
primarily through a global network of third-party agents using
our multi-currency, real-time money transfer processing sys-
tems. This service is available for both international transactions —
that is, the transfer of funds from one country to another — and
intra-country transfers — that is, money transfers from one
location to another in the same country.
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Consumer-to-business payment services, which allow consum-
ers to send funds to businesses and other organizations that
receive consumer payments, including utilities, auto fi nance
companies, mortgage servicers, fi nancial service providers
and government agencies (all sometimes referred to as “bill-
ers”) through our network of third-party agents and various
electronic channels. While we continue to pursue international
expansion of our offerings in selected markets, as demonstrated
by our December 2006 acquisition of Servicio Electronico de
Pago S.A. and related entities (“SEPSA” or “Pago Fácil”) in
Argentina, the segment’s revenue was primarily generated in
the United States during all periods presented.
Businesses not considered part of the segments described above
are categorized as “Other” and represented 3% or less of con-
solidated revenue during the three years ended December 31,
2007, 2006 and 2005, and include Western Union branded money
orders available through a network of third-party agents primarily
in the United States and Canada, and prepaid services. Prepaid
services include a Western Union branded prepaid MasterCard®
card sold through select agents in the United States and the
internet, a Western Union branded prepaid Visa® card sold on
the internet, and top-up services for third parties that allow con-
sumers to pay in advance for mobile phone and other services.
Also included in “other” are recruiting and relocation expenses
associated with hiring senior management positions new to our
company, and consulting costs used to develop ongoing pro-
cesses in connection with completing the spin-off; and expenses
incurred in connection with the development of certain new
service offerings, including costs to develop mobile money
transfer and micro-lending services.
The consumer-to-consumer money transfer service is available
through an extensive network of agent locations that offer West-
ern Union services around the world. Some of our agent locations
only pay out and do not send money. In addition to our agent
locations, we are expanding the ability of consumers to send
money through other channels, such as our internet site, west-
ernunion.com, and the telephone. Consumer-to-consumer money
transfer service is available through the Western Union®, Orlandi
Valuta® and VigoSM brands. The consumer-to-business service
allows consumers to transfer money to a biller. This service is
available at many of our Western Union agent locations, primarily
in the United States, and through the internet or by telephone.
Factors that we believe are important to our long-term
success include international growth by expanding and diver-
sifying our global distribution network, building our brands
and enhancing the consumer experience, expanding the chan-
nels by which consumers can send or receive money, and
diversifying our consumer-to-consumer and consumer-to-
business service offerings through new technologies and new
services. Signifi cant factors affecting our fi nancial position and
results of operations include:
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Transaction volume is the primary generator of revenue in
our businesses. Transaction volume in our consumer-to-
consumer segment is affected by, among other things, the
size of the international migrant population and individual
needs to transfer funds in emergency situations. We believe
that the demand for money transfer services will be strong as
people continue to migrate to other countries for economic
and other reasons. As noted elsewhere in this Annual Report,
a reduction in the size of the migrant population, interruptions
in migration patterns or reduced employment opportunities
including those resulting from any changes in immigration
laws, economic development patterns or political events,
could adversely affect our transaction volume. For discussion
on how these factors have impacted us in recent periods, refer
to the consumer-to-consumer segment discussion below.
|| Revenue is also impacted by changes in the fees we charge
consumers, the amount of money sent, and by the foreign
exchange spreads we set. We intend to continue to implement
strategic pricing reductions, including actions to reduce
foreign exchange spreads, where appropriate, taking into
account growth opportunities and competitive factors.
Decreases in our fees or foreign exchange spreads generally
reduce margins, but are done in anticipation that they will
result in increased transaction volumes and increased rev-
enues over time.