Money transmitter Western Union (WU) posted its third quarter earnings after the bell on Tuesday, and while the company beat EPS forecasts they provided bleak guidance as a result of expected increased regulatory costs. Money transmitters across the board, including classic competitor Moneygram International (MGI) face a tough future, as more people needing to transfer money have been utilizing the popular virtual currency bitcoin.
However, bitcoin itself cannot be blamed for Western Union’s decline, and may not long last as a cheap, regulatory-free alternative to traditional money transmitters. The major digital cryptocurrency exchanges might soon be facing the same constraints as its traditional currency counterparts, severely undermining the appeal of bitcoin in America.
Western Union raised compliance-related cost guidance from 3.5 percent to 4.5 percent in 2013, up from 2.5 percent last year. Contrasted with bitcoin exchanges like Mt. Gox, Bitstamp, and Coinbase, who currently pay zero, Western Union is finding it harder and harder to compete.
The bitcoin exchange’s status as a tax-free, regulatory-exempt money transfer apparatus might not last long in the States – that is, if regulators have their way. On Oct. 1 the New York Department of Financial Services subpoenaed several bitcoin startups, stating that “regulations need to be in place,” and if regulation killed bitcoin’s viability as a liquid value transfer vehicle, “so be it.”
At the same time, bitcoin has attracted mainstream interest from big players like the Winklevoss Twins of Facebook Inc. (FB) fame. The Winklevii are currently seeking to set up the first Bitcoin ETF, which would allow Wall Streeters to speculate on the digital currency with American dollars.
Whether bitcoin survives, dies, or thrives, the fact remains that Western Union is in trouble, and investors are spooked. Following the pessimistic guidance, the company’s shares shed over 12 percent amid exceedingly heavy trading.
For their third quarter 2013 earnings report, Western Union reported a net gain of $214.4 million, or $0.39 per share, versus the net gain of $269.5 million, or $0.45 per share, from the same period a year ago. Revenue for the quarter was $1.41 billion, as compared to $1.42 billion from the previous year. Analysts were expecting a net gain of $0.35 per share on revenues of $1.4 billion.
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