Uncategorized

Competition in hot pursuit, Western Union continues to lead

close

Email a Friend

Competition in hot pursuit, Western Union continues to lead

Dozens of startups have opened in the last several years touting faster and cheaper ways to send money abroad. These digital-native companies like U.K.-based Transferwise and WorldRemit, along with Paypal’s Xoom, say their goal is to disrupt the money transfer sector, long associated with high fees and waiting in lines at kiosks with a pile of cash.

But the industry’s grandfather, 165-year-old Western Union that started out sending telegrams, does not seem to be losing its foothold. Western Union’s share of the cross-border transfer market has hovered around 14% for the last five years, according to independent research and consulting firm Aite Group. And no startup has more than a 1% market share, according to Aite.

“It’s a lot harder to take them out than a lot of people think,” said Brett Horn, an analyst at Morningstar. covering the money transfer sector. “Western Union looks very outdated, but when you look below the surface, that’s not the reality of it.”

How a 165 year old financial services firm competes

This is partly because Western Union, unlike the upstarts, maintains a wide network of bricks-and-mortar locations that can send cash, which is still a staple in much of the developing world. The developing world accounts for $432 billion of the $582 billion global remittance market, according to the World Bank.

But it is also because Western Union has embraced the rapidly growing world of do-it-yourself online transfers, mobile payments, and even cryptocurrencies like Bitcoin, as it is well aware of the digital shift in the remittance market.

Only 7% of remittances in 2015 were digital, according to Aite Group.  This is because digital transfers, the bread and butter of startups, often require a credit card or bank account, something lacked by the 38% of the world’s residents who are considered unbanked, according to the World Bank. But the numbers of unbanked people continue to fall rapidly, with a recent report from the Global Forum on Remittances and Development estimating that cash-based remittances will only remain dominant for another five years.

Western Union is prepared for future cash trends

Western Union continues to prepare for this widening shift away from cash, offering online transfers to bank accounts in 33 countries, and the ability to send money to mobile phones in 13 developing countries, where consumers can use the funds in their mobile wallets to pay bills and buy goods without having a bank account. All of these efforts overlap with services offered by startups.

“Western Union is still a giant, but even giants like Western Union are changing their business model,” said Pedro De Vasconcelos, manager of the International Fund for Agricultural Development’s Financing Facility for Remittances, which aims to promote innovative and affordable ways for people to send remittances to poor, rural areas.

In another attempt to keep up with the rapidly changing financial world, in April Western Union invested an undisclosed sum in Digital Currency Group, an investment firm focusing on bitcoins and the technology underlying them, blockchain.

And last year it launched WU Connect, which allows money transfers through social media and messaging applications like Viber.

New technology just part of the formula

But because the fees are lower for the digital transactions that are likely to replace a growing number of in-person cash transfers, in order not to die a slow death, Western Union must maintain its market share rather than let it slip away to startups.

“For incumbents, like Western Union  there is an erosion of their margins and they are being forced to tighten up operations,” Talie Baker at Aite wrote in an email to Tradestreaming. “As prices continue to decline, incumbents will be challenged to migrate their existing customer base to digital forms of remittances as well as attract the millennial generation who may be attracted to some of the startups over Western Union.”

Analysts also pointed out that there are many lucrative niches and sub-sectors in the cross-border money transfer market, such as offering other financial services like savings accounts to unbanked customers, and that many startups are actually targeting these areas.

“There are many places for startups to go without bothering Western Union,” Horn said. “It’s not contradictory to say that Western Union is going to maintain its business and that there is also a lot of opportunity for upstarts.”

Photo credit: Eleaf via Visualhunt.com / CC BY

0 comments on “Competition in hot pursuit, Western Union continues to lead”

Events, Uncategorized

New speakers announced for Tearsheet’s Resilience Conference

  • The Resilience Conference will celebrate the people, teams and companies successfully navigating through this crisis.
  • 3 new speakers have just been announced.
Tearsheet Editors | June 25, 2020
The Customer Effect, Uncategorized

Inside Yielders, the UK’s first regulatory compliant Islamic crowdfunding platform

  • Yielders, an equity-based crowdfunding platform for real estate, is the first Shariah-compliant financial technology company to get regulatory approval in the U.K.
  • The platform's user base is 35 percent non-Muslim, some of whom may be attracted to the ethical investing principles.
Suman Bhattacharyya | May 18, 2017
Sponsored, Uncategorized

FinTech is changing your life, and you don’t even know it

Brandeis University | May 01, 2017
Uncategorized

FinTech Week: By the numbers

  • Empire Startups' inaugural FinTech Week begins today in New York
  • In preparation for 25 forthcoming events over four days, here's a breakdown by the numbers.
Tanaya Macheel | April 24, 2017
Uncategorized

Hi 5! The top five fintech stories we’re following today

  • Retailers may be looking into the future as opposed to implementing for today.
  • Banks are working to get more people comfortable using mobile apps.
Zack Miller | February 06, 2017
More Articles