The changing face of the money transfer business

Kate Davidson May 1, 2014
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The changing face of the money transfer business

Kate Davidson May 1, 2014
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Western Union, by far the biggest player in the money transfer business, has new competition from Walmart, which recently added a store-to-store money transfer service in the U.S. Both companies know that to grow in this industry, you have to keep adding new customers – which means the face of the money transfer business is changing a bit.

To understand how the sector is trying to attract customers one by one, meet two guys who recently sent money through Western Union. Customer No. 1 is Carlos Galvez.

“Well, I just sent $370 right now,” says Galvez, coming out of a small Western Union retail location in Washington.

You could call Galvez a traditional Western Union customer. He’s an immigrant who makes enough selling tamales to send money to cousins in El Salvador.

“We can’t send money every time,” says his son, Armando Menjivar, “but at least once a month, or when it comes to a big emergency.”

Now, meet Customer No. 2, who is not traditional.

Will Tjernlund, a self-described “third-generation Minnesotan. The 23-year-old buys and sells things on Amazon and eBay, and he used Western Union to send money to China.

But what’s actually different about Tjernlund’s story is where he sent the money from.

I googled Western Union to find the nearest location to me,” he says. “And the nearest location was inside a U.S. Bank.”

Over the last five years, the number of bank branches offering Western Union services has almost quadrupled, to more than 10,000 in the U.S. and Canada, according to the company. U.S. Bancorp, SunTrust Banks Inc., and Regions Financial Corp. are among its biggest partners.  

Analysts say banks used to resist this kind of partnership. Some didn’t want to advertise a branded service that wasn’t their own.

Plus: “Western Union traditionally served the underbanked and the underserved,” says analyst Wayne Johnson with Raymond James, which has investments in this sector.

But the majority of Western Union senders today are banked, according to Frank Lockridge, the vice president of strategic accounts for Western Union in the U.S. That means those customers have bank accounts, even if their relatives back home don’t.

“Some of our bank partners have realized that they’ve seen their customers getting the money out of the bank ATMs, getting the cash out of the branch, and walking next door to conduct that money transfer,” says Lockridge.

So now banks are trying both to retain their customers’ business, and draw new underserved clients into mainstream financial services.

Western Union won’t say how well the strategy of partnering with banks is paying off. But it does say people who transfer money from banks tend to send more than people in retail locations.

The bulk of the money Western Union sends is to and from foreign countries. But it does have a new domestic competitor: a service called Walmart-2-Walmart.

“It’s available at all 4,200 of Walmart branded locations,” says Daniel Eckert, Walmart U.S.’s senior vice president of services.

Eckert says simplified, inexpensive money transfer services are especially useful to people displaced from their families, like military personnel and shale oil workers.

“Even just in the first few days of Walmart-2-Walmart being up and running, our primary transaction stores were Williston, North Dakota, which is right out by the oil fields, and Killeen, Texas, which is just outside of an active duty army base,” he says.

And that’s how it goes in the money transfer business – adding customers bit by bit.

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