Prep Your Portfolio for the Blockchain Revolution

Blockchain technology is going to disrupt a lot of industries. And it’ll hit middlemen the hardest.

One of the most glaring examples of middlemen is Western Union (WU). It takes a not-so-small cut of every dollar that its customers, mainly low-income minorities, send to their foreign-domiciled families.

Established in 1851, Western Union is the world’s largest global consumer-to-consumer payment transfer service in the world. It has a global network of over 550,000 locations in more than 200 countries. The five major markets it serves is India, Philippines, Mexico, Brazil and China.

You’ve probably walked by a Western Union kiosk a thousand times in your life. You’ve just never paid attention to it because you don’t use their services to send money overseas.

But the next time you go to a national grocery store chain, take a peek at the Western Union kiosk by the checkout lane. You’ll see a line of people waiting their turn to send money to somebody.

I know a fair bit about this from my own family’s experience.

My grandfather, Fusakichi Sagami, left Hiroshima in 1892 for Tacoma, Wash. Japan at the time was a poor, feudal country, whereas America was known as the land of opportunity.

While my grandfather never did strike it rich in the U.S., he did well for himself. He made enough from his western Washington vegetable farm to send a few gold coins to his relatives in Japan. I am sure that those coins made a monumental difference in the quality of their hardscrabble lives.

That same flow of money from immigrants in the U.S. to their poor relatives in lesser-developed countries is still going on today. And those remittances are big, big business.

How big? The World Bank estimated that cash remittances from developed countries to less-developed countries reached $528 billion last year and is expected to reach $689 billion this year. Over the next 15 years, remittances are expected to add up to $6.5 trillion.

The average cost of sending $200 via Western Union transfer averaged a near-unconscionable $13.80 or 6.9%. For example, I watched a man pay $13 in fees to send $50 to somebody in Nigeria.

But competition — from new, lower-cost niche money transfer providers and digital currencies — is already steadily eating away at Western Union’s business.

Western Union came out with quarterly results last week, and they weren’t pretty.

• Sales of $1.308 billion — a 6.7% decrease year-over-year — missed estimates of $1.32 billion by 0.91%.

• Profits also missed estimates by 5 cents at 38 cents per share. This is well below the $0.49 it made a year ago.

• Operating income tally from the consumer-to-consumer division dropped from $263 million last year to $228 million today.

And this shift makes sense. There are no transfer fees to move digital currencies from one account to another. Anything that saves people money will be a popular option. And because of blockchain, the transfer is safe from corporate errors or government meddling.

Add in the convenience of being able to buy and transfer digital currencies from your preferred smart device, rather than wait in line at a kiosk, and it’s no wonder Western Union is taking a blow.

I don’t mean to pick on Western Union. It certainly isn’t the only middleman that is going to get clobbered by blockchain technology.

Brokers of any kind — bankers, stock brokerages, real estate title companies, cybersecurity, ride sharing, auto sales/rentals and insurance, for example — are going to see their profits margins shrink to fractions of what they are today.

So, what should you do with this information? Well, a good place to start would be to avoid stocks of middlemen like Western Union.

Then, you should load up on stocks of companies that are investing in and using blockchain technology — they’re the ones who will put middlemen out of business and walk away with the profits.

Best wishes,

Tony Sagami