Western Union's Dunked-on CEO Shoots for Expansion With Cash
Western Union Co. CEO Hikmet Ersek
Kevin Moloney
Western Union Co. chief executive officer Hikmet Ersek.
Western Union Co. chief executive officer Hikmet Ersek. Photographer: Kevin Moloney
Hikmet Ersek, Western Union Co.’s new leader, traces his switch from professional basketball to financial services to the day when an 18-year-old dunked on him.
The incident during a game for his team in Austria in the mid-1980s left the 6-foot-5-inch Ersek questioning his basketball skills. Even worse, the then 26-year-old lost his paycheck later that season when the team’s sponsor went bankrupt.
“Suddenly I didn’t get a salary,” Ersek said. “Obviously I had to find something else.”
Ersek, now 50, last week took over as chief executive officer of the world’s biggest money-transfer business. His game plan calls for adding more than 30,000 locations annually to a network that has quadrupled in the last decade to 430,000. Some analysts including Bill Carcache of Macquarie Securities Group question whether new product lines Ersek is developing will stem customer defections to transfers through payment cards, computers and mobile phones.
“There’s nothing wrong with cash,” Ersek said in an Aug. 30 telephone interview from Englewood, Colorado, where Western Union is based. “There’s still room to grow this business.”
Ersek succeeds Christina Gold, 62, who retired after leading the company since it split from First Data Corp. in 2006. While the number of Western Union agents at banks, post offices and standalone outlets increased 50 percent during her tenure, the company’s shares have fallen 12 percent since it was spun off as revenue declined in Mexico and the U.S.
The share slump reflects concern that Western Union’s main business of consumer-to-consumer cash transactions is at risk, said Carcache.
Disintermediation Risk
“This is a business that thrives in a world of paper-based payments,” said Carcache, who began covering the company for Macquarie in July 2009 and is the only analyst among 26 surveyed by Bloomberg with a “sell” rating on Western Union. “With the emergence of pre-paid, Internet and mobile alternatives, the risk of disintermediation of the Western Union agent network rises. We’re seeing evidence of it already.”
Unlike the telegram that was scrapped as a service by Western Union in 2006, money transfers won’t go extinct because there are few competitors with both send and receive accounts to handle foreign-exchange rates and prevent theft, said Brian Barish, president of Denver-based Cambiar Investors LLC.
“The competition is middling at best,” said Barish, who helps manage $5 billion including Western Union shares. “Money transfer is difficult to replicate and structurally very profitable when you have the scale of a Western Union.”
U.S. Revenue
The U.S. was the only country among more than 200 that accounted for more than 6 percent of the company’s consolidated revenue in 2009. The Philippines, Japan and China are expansion targets in Asia, while India, Saudi Arabia and the United Arab Emirates are priority in the Middle East.
Ersek, the son of a Turkish father and Austrian mother, speaks Turkish, German and English. He left the basketball court in 1986 when he graduated from the University of Economics in Vienna with a degree in economics and business administration. He then joined Europay International, the European unit of MasterCard Inc., where he worked his way up to management from selling credit cards door-to-door.
That’s when Ersek said he first encountered Western Union as he struggled to find a way to send money from Austria to his father in Turkey. Ersek moved to Western Union in 1999 after three years at General Electric Capital, where he was responsible for retailer sales, finance and credit cards.
Ersek’s background in the payments industry made him an appropriate choice to succeed Gold, who introduced prepaid cards in the past year to help compensate for slumping U.S. sales, according to Darrin Peller, an analyst at Barclays Capital.
“There’s very little valuation in this stock for their prepaid operation,” Peller said in a telephone interview.
goCASH Cards
Western Union said in its second-quarter earnings report that more than 500,000 of its goCASH prepaid cards were delivered to U.S. agent locations, an increase from 150,000 at the end of 2009. The total may reach 1 million this year, Peller estimated.
“The big question is when and how they’re going to move internationally,” he said. “If they can take the business model for cards here and apply it to Mexico, Europe and elsewhere, that could be huge given their distribution network.”
Ersek’s challenge is to introduce new products such as the prepaid cards and mobile-phone transfers while maintaining pricing, said Macquarie’s Carcache.
“The cost of transferring money will fall at a faster rate than the company is able to drive volume growth,” he said.
Mobile Transfers
Western Union is on pace to have 150 million subscribers to its mobile-phone transfer service, with pilot programs in Malaysia and South Africa allowing customers to send and receive money into a digital e-wallet to withdraw cash at agent locations, Ersek said.
New competitors may include banks, wireless carriers and Visa Inc. and MasterCard, which are developing technology to make payments with mobile phones.
“Mobile is something we are investing in and keeping very high on our radar screen,” he said. “I don’t see an immediate effect. It’s a long-term opportunity.”
To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net;
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