Just before the 4th of July holiday my partner Bryan Derman and I had a wide-ranging conversation with Matt Dill, SVP and head of Western Union’s Digital Ventures.
Western Union capitalizes on two key trends: an increasing number of people that live and work abroad (per the World Bank an estimated 200 million people) and the growing value of remittance funds these migrant workers send home (per Aite, $400 billion /year). Western Union moves $67 billion through its network each year, representing approximately 16.9% (June 2009 WU Presentation) of the global remittance market.
Unlike bank-to-bank transfers, funds moved from one individual to another via Western Union are immediately available to the recipient. Traditionally these person-to-person (P2P) transactions were initiated in person, at one of Western Unions 334K locations worldwide and collected, in person, at a second location, often in another country. Today an increasing number of Western Union’s money transfer transactions are now originated or received via mobile phones or bank accounts.
Dill used an anecdote to demonstrate how Western Union recognized early on that mobile would be an important component of its money transfer services. Western Union used to distribute long distance calling cards to money senders so that they could phone the recipient and alert them that funds were available. During 2003-04, Western Union noticed a precipitous decline in the usage of these calling cards, indicating that mobile phones (typically with prepaid or subscription based fee arrangements, and therefore no need for calling cards) were reaching high levels of penetration in the developing world. Western Union believes that 90% of its customer base, typically early-adopters in emerging markets, have access to a mobile phone, citing that the number of mobile users in emerging markets has increased from 1.5 billion to 4 billion today.
Accordingly, Western Union has embraced the mobile channel as a key component of its strategy. Dill is charged with developing and commercializing the mobile channel, as well as ventures with financial institutions across all channels: web, ATM, IVR, as well as mobile. Mobile alerts and loyalty programs complement mobile-based transactional services via mobile applications or third party financial services providers, particularly in emerging markets. Western Union is moving beyond pilots in many markets, developing multi-country arrangements with key partners.
In many markets, Western Union partners with banks and post offices as local agents and in many developing countries, these financial institutions represent the vast majority of the company’s agent network (unlike in the US where it relies on a network of non-bank agent locations). Yet, in many emerging markets, such as Kenya, only 10% of the population has a bank account (the banked segment is mostly urban and relatively wealthy). Mobile phone based alternate financial service providers – Mpesa in Kenya is one of the most prominent examples – offer a wide range of bank-like services to a much broader population in emerging markets. Western Union now extends its network of bank relationships with non-bank financial services providers in developing markets enabling a direct connection to individual customers rather than agents. A number of these transactions are no longer cash-based, either initiated via an electronic transaction or received as an electronic credit to either a bank account or a mobile account.
Banks, such as USBank and Scotiabank, have introduced “send money” services via a button/link on the bank’s website enabling money transfer initiators to draw on funds on deposit. Recipients can receive funds as a credit to their bank account, a credit to their mobile phone account, or, via the more traditional Western Union model, recipients can walk into a bank or other agent location to pick up cash. Western Union is working with core processor Fidelity Information Services to offer its services to more banks.
Two recent announcements by Western Union underscore this strategy:
- Western Union’s new Digital Vendor Program extends the reach of its services to mobile providers in Latin America, Africa, the Middle East, and Asia. The program is meant to simplify development and accelerate time to market as well as ensure a consistent user experience for Western Union users worldwide. Four mobile finance platform providers have joined the certificate programs far: South Africa-based Fundamo, India-based mChek, US based Sybase 365, and Singapore based Utiba Pte. (Press Release)
- Western Union is partnering with Zain, global leader in money transfer, to deliver mobile money transfer services in countries in Africa and the Middle East through Zain’s new Zap platform. Using Zap customers have access to a full range of transactional services from their mobile phones. As recipients of a Western Union money transfer they can elect to top up their Zap mobile wallet or cash out the funds. Customers can interact with select bank accounts, top-up or transfer airtime, and move money to businesses, friends and family. The service allows customers to pay bills such as electricity, and can even be used to settle grocery bills in the supermarket. Zap has been operational in Kenya, Tanzania and Uganda for several months, making mobile banking services available to more than 100 million people in East Africa. Zain has announced plans to introduce Zap in 22 markets. (Press Release)
Finally, in an interesting complement to the bank-based and mobile-based strategies being deployed in developing markets, Western Union just
that beginning this week in the US, it will selectively offer a reloadable Visa prepaid card to holders of its Gold Card global consumer loyalty program. This program primarily targets money-transfer senders, who either operate outside the traditional banking system or are seeking a alternative to credit cards in the current economic environment. We believe this represents a natural and clever expansion of Western Union’s existing relationships with unbanked/underbanked and immigrant communities in the developed world.