Western Union 2007 Annual Report Download - page 31

Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Revenues
2007 COMPARED TO 2006
The primary driver of consumer-to-consumer revenue growth
are transaction fees and foreign exchange revenue. Consumer-
to-consumer money transfer revenue growth of 9% for the year
ended December 31, 2007 over the same period in 2006 was
driven by our international business. However, the growth
experienced by our international business has been partially
offset by revenue declines in our domestic and Mexico busi-
nesses in 2007.
International revenue growth of 15% for the year ended
December 31, 2007 compared to the corresponding period in
2006, resulted from a 20% increase in volume of international
money transfer transactions. Our international transactions that
were originated outside of the United States also continued to
display strong transaction and revenue growth for the year ended
December 31, 2007.
The key strategic inbound markets of India and China con-
tinued to grow, with revenue growth of 44% and 37%, respectively,
on transaction growth of approximately 75% and 25%, respec-
tively, and these two markets combined represented approximately
5% of Western Union consolidated revenues for the year ended
December 31, 2007.
Fluctuations in the exchange rate between the euro and the
United States dollar have resulted in benefi ts of $78.8 million
and $11.5 million in 2007 and 2006, respectively, over the previ-
ous year. These benefi ts to consumer-to-consumer revenue would
not have occurred had there been a constant exchange rate, and
was net of the impact of our foreign currency hedges.
The United States to Mexico, United States domestic and the
United States outbound businesses were adversely impacted by
various factors in the United States for the year ended December
31, 2007. These factors, which began in the second quarter 2006
and are discussed in more detail below, include the immigration
debate, and market softness, in part due to the slowdown in the
construction industry. We responded to these factors by launching
distribution, pricing, advertising, promotion and community
outreach initiatives. We have not seen transaction and revenue
growth rates return to levels prior to 2006. We believe this is due
primarily to market softness in the United States, in part due to
a slow down in the construction industry.
Although domestic transactions decreased for the year ended
December 31, 2007 over the corresponding period in 2006, due
primarily to the factors described above and the decline in trans-
actions initiated on our website and through the telephone, as
described below, the decline in domestic transactions began to
moderate during each sequential quarter in 2007. Domestic
revenue declined at a higher rate than transactions, due in part to
the impact of price decreases and lower principal amounts sent.
Transactions and revenues for money transfers initiated on
our website and through the telephone declined for the year
ended December 31, 2007 compared to the same period in
2006. Transactions initiated in the United States have been, and
we anticipate will continue to be, impacted by tightened controls
implemented beginning in early 2007 by Western Union, card
issuing banks and card associations in response to credit and
debit card fraud in the United States. These tightened controls
have directly impacted our consumers’ ability to use their debit
and credit cards to send money on our website and through the
telephone, decreasing the volume of transactions. Card issuing
banks and card associations have begun to allow more consumer
transactions to be processed, in part in response to Western
Union’s own increased scrutiny of these transactions. However,
we anticipate transaction growth will continue to be impacted
by these factors and consumer perceptions of their ability to
transact on the website and through the telephone as a result of
the additional controls that have been implemented.
While Mexico transactions grew for the year ended December
31, 2007 compared to the year ended December 31, 2006,
revenue declined due to price reductions taken in early 2007.
However, Mexico revenue and transaction growth rates began
to converge during each sequential quarter in 2007 as there were
no signifi cant pricing reductions after the early part of 2007.
Foreign exchange revenue increased for the year ended
December 31, 2007 compared to the same period in the prior
year due to an increase in the international business resulting in
increased cross-currency transactions, partially offset by reduced
foreign exchange rate spreads in selected markets.
Year Ended December 31,
2006 2005
2007 2006 (excluding Vigo) 2005 (excluding Vigo)
Consumer-to-consumer transaction growth/(decline):
International(a) 20% 29% 24% 27% 26%
Domestic(b) (4)% (1)% (2)% 5% 5%
Mexico(c) 4% 35% 6% 28% 21%
Consumer-to-consumer revenue growth/(decline):
International(a) 15% 17% 15% 16% 15%
Domestic(b) (10)% (3)% (3)% 4% 4%
Mexico(c) (4)% 29% 7% 33% 27%
(a) Represents transactions between and within foreign countries (excluding Canada and Mexico), transactions originated in the United States or Canada and paid elsewhere, and
transactions originated outside the United States or Canada and paid in the United States or Canada. Excludes all transactions between or within the United States and Canada and
all transactions to and from Mexico as refl ected in (b) and (c) below.
(b) Represents all transactions between and within the United States and Canada.
(c) Represents all transactions to and from Mexico.