For many immigrants in the United States, sending small amounts of money to say Cholpon-Ata in the Kyrghyz Republic, or Antananarivo in Madagascar, can be an experience fraught with annoying hurdles. I cannot easily transfer money from my bank account in Stamford, Connecticut to a bank in Ghana, my homeland. Even then, if I could there would be a million and one issues to sort through. Enter The Western Union Company – WU, a unit of First Data Corporation that was spun-off on September 29^th, 2006.

How?

Western Union makes money by facilitating international and domestic money transfers. The company operates in two units;

• A Consumer-to-Consumer unit, and
• A Consumer-to-Business unit.

Sending a money transfer through WU could not be easier, one need only log onto the website, or locate an agent. After filling a few simple forms, the customer decides how much money will be sent. WU charges a fee, and the money is ready to be picked up by the recipient. The customer then calls the recipient, and relays the details that are required to enable pick-up at a WU agent in the recipient’s locality. The last time I sent money home, it was ready for pick up in roughly 5 to 10 minutes. When I have sent money to my mother in Nigeria, she picks it up at an agent at the bank where she keeps a savings account. It is that simple.

Where?

• The company has existed for over 150 years, and boasts 270,000 agents in more than 200 countries and territories.[i]
• The Consumer-to-Business unit operates primarily in the United States. WU is very well positioned in China, India, Mexico and Thailand – countries that the UN has identified as major sources of emigration.

Why?

Demand for reliable, safe and uncomplicated money transfer services is large and growing thanks to global immigration patterns.

• According to the Inter-American Development Bank, remittances to Latin America from the United States will amount to approximately $45 Billion in 2006, a fifty percent increase from nearly $30 Billion in 2004.[ii]
• The World Bank estimates that remittance flows to developing countries will amount to at least $199 Billion in 2006. These remittances have become a critical piece of overall capital flows to many developing countries, and in some cases represent as much as seventy percent of Foreign Direct Investment and outstrip Official Development Assistance by several degrees of magnitude.[iii]
• Issues around global migration, and capital flows via remittances have become a major policy concern of governments and policy makers around the world, and will remain so for the foreseeable future.

WU is very well positioned in a market that promises to grow larger with time, especially as the demographic reality of aging populations in the developed world necessitates friendlier immigration policies. It wields unmatched brand recognition – 81 percent spontaneous brand awareness among money transfer users in Western Europe[iv], and an infinitely superior distribution network of agents. In addition, Western Union holds several operational advantages over its current and potential competitors[v];

• It can pay money transfers in over 120 currencies.
• It handles an average of 1,000,000 transactions daily, which amounts to 12 transactions every second. This should protect it from a rapid and unforeseen erosion of its business in the event that a credible competitor appears on the horizon.
• Its operations accommodate multiple consumer preferences, and technology platforms.

WU’s management has identified a number of areas on which they will focus[vi];

• Strengthen the brand, and enhance customer satisfaction.
• Amplify convenience and choice for money transfer users.
• Explore new service offerings, e.g. a new Direct-to-Bank service, and enhance Consumer-to-Business services[vii].
• Expand and diversify global distribution.

The major threat to WU’s business is the lingering uncertainty that surrounds immigration reform in the US, and other developed countries.

WU competes directly with Checkfree Corporation, MoneyGram Payment Systems Inc., and the United States Postal Service. Other potential competitive threats could arise from EBay’s PayPal service, and Wal Mart Stores – which could expand its ambitions to start a retail bank into an operation that includes international money transfer services as well. However, it would take a considerable amount of time and resources before any of these would gain the scope and scale that WU has attained, or to erode the brand loyalty that WU has built within the immigrant community. More and more people buy bitcoin these days, that will obviously factor in as well, however it’s close to impossible to predict the future of this currency.

December 6, 2006