Green Dot Corporation (GDOT), The Western Union Company (WU): How To Play

The company is the dominant money transfer company. Most people write a check to get money from one place to another. However, if you don’t have a bank, that’s not an option. The Western Union Company (NYSE:WU) fixes that problem.

The company has over 500,000 locations in more than 200 countries where a customer can walk in with cash and send it to another person. The bulk of the company’s locations are foreign, so this is a play on several trends. The first is the underbanked in the United States. Second is illegal immigration.

The third is, perhaps, the most interesting — the underbanked in foreign markets. Emerging markets, where The Western Union Company (NYSE:WU) has a material presence, have a massive population of underbanked citizens. The Western Union Company (NYSE:WU) is positioning itself to serve these customers before the banking industry gets to them.

A problem along the key Mexico/U.S. corridor took a toll on the shares last year. They haven’t recovered yet, which means now could be a good time to get in on the cheap.

Getting Into the Industry

Total System Services, Inc. (NYSE:TSS) is a large payment processor. It basically connects the point of sale to the bank that issues a credit card or debit card. That alone doesn’t make the company very interesting with regard to the underbanked sector.

However, it recently agreed to acquire Green Dot Corporation (NYSE:GDOT)’s main competitor, NetSpend Holdings Inc (NASDAQ:NTSP). That will expand the company’s business to include a retail component. And one that will serve the underbanked without competing directly with the banks.

It could actually use its acquisition to expand its relationship with the banks via co-branding. Even without such an expansion, the shift makes Total System Services, Inc. (NYSE:TSS) look pretty interesting as a way to play the underbanked. Its more broadly diversified business adds some safety, as well.

Like Western Union, however, the company is a global player. So, with operations in over 80 countries, including emerging markets, it isn’t a stretch to expect NetSpend Holdings Inc (NASDAQ:NTSP) to expand into new markets after the acquisition is consummated. An all-cash deal, NetSpend Holdings Inc (NASDAQ:NTSP) shareholders should probably lock in gains.

Into the Unknown

No one really knows how large the underbanked market is. However, it is notable and there are some good investment options for tapping into it. The three companies above are a few examples.

The article It’s a Bigger Opportunity Than it Seems originally appeared on Fool.com is written by Reuben Brewer.

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