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In a conscious effort to expand its e-payment service, Western Union Co. (WU - Analyst Report) has announced the launch of WU Pay. 

The recently launched platform will enable customers to pay for their online purchases from their bank’s online pay service or in cash at any of the company’s agent locations. WU Pay is also of great use to consumers who do not have a debit or credit card as they can make payments without submitting a credit or debit card number.

WU Pay can be used to make online payments across various merchant sites including Sears, Kmart, Buy.com, Tiger Direct, RedCats USA and others. Consumers can also use the payment option to buy virtual gift cards from more than 60 retailers including J. C. Penney (JCP - Analyst Report), American Airlines, Amazon (AMZN - Analyst Report), Dell , Home Depot (HD - Analyst Report) and others.

Last year, Western Union acquired eBillme, an online payment platform, and the WU Pay service is based on this platform.

Western Union is intent on aggressively building its electronic payments segment due to rapidly decreasing technology cost, reduced operational and processing costs and an increasing trend towards online commerce. On the other hand, the traditional form of physical money transfer is losing its sheen due to lack of convenience, less security, and limited geographical reach.

Money transfer services through electronic channels accounted for approximately 3% of consolidated revenue for the year ended December 31, 2011. The company had already been providing online money transfer services in more than 20 countries during the same period. Last year, the company also announced the formation of a new unit named Western Union Ventures, which will feature the company’s new-age service offerings for its customers.

Management expects the digitalized platform for the remittance market to evolve at a much faster rate than the traditional means in the upcoming period. The company’s westernunion.com business is worth over $100 million at present and management expects $500 million in revenue from this line of business by 2015.

The recent acquisition of PlaySpan Inc. by Visa Inc. (V - Analyst Report) demonstrates the increasing popularity of the digital payment platform.

Western Union competes closely with Moneygram International, Inc. (MGI - Analyst Report).  Western Union currently retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Neutral” recommendation on its shares.

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