Western Union: Expanding on all fronts

Alvisini: compliance is a key asset

The role of Western Union in the international payments infrastructure is closely identified with person-to-person cash transfers through a wide range of outlets – it currently has 510,000 agents worldwide.

In recent years, it has also faced criticism for being expensive, and for being vulnerable to exploitation by money-launderers. Both are issues that it recognises and is responding to, it says.

In fact, competitive prices and products alongside demonstrable compliance with AML and other regulations are central to its development plans, says  Massimiliano  – ‘Max’ – Alvisini, regional director UK, Ireland & Nordics, at Western Union Financial Services.

According to Alvisini, the company’s natural market consists of “those  businesses and people who are not properly supported  by the financial services industry”, and within that market he says the company is rapidly changing.

“We are moving from being a single product company – substantially a  money transfer, cash-to-cash, company – to a multi-channel, multi-product company,” he says. “Multichannel is a journey that we have already started on, and we have already differentiated our business opportunities  to offer payments online. That is now one of our best performing channels, growing at 40% year on year.”

Inevitably, another area of development is mobile.  “We can provide services from the UK to more than 15 countries, particularly  some of the developing countries such as Kenya, where you can send money to people and they can use it in their everyday lives, for instance to pay taxes, something which they can’t do in Europe at the moment,” he says.

A further change is away from cash to account-based money transfer, an area where it has signed a number of deals with banks and is looking actively for more.

“In Europe we have signed important deals with Unicredit in Italy, Banco Transylvania in Romania and others – altogether we signed 23 partnership deals with banks in Europe in 2012,” he says.

On the global stage, last September a deal was announced with Industrial and Commercial Bank of China that allows the bank’s customers to send or receive money from their online bank accounts on a 24/7 basis around the world through Western Union’s network.

This came on top of previously announced deals with Postal Savings Bank of China, Agriculture Bank of China and China Everbright Bank, adding ICBI’s 115 million online banking customers to the network.

On the product side the firm has also been expanding its portfolio. “We launched prepaid cards this year in the UK, Austria and Germany, which was done in partnership with MasterCard, and in partnership with Allianz for insurance services that will be fully developed in 2012,” Alvisini says.

“This is moving us to being the leading financial services provider for the under-served, with multi-channel and multi-product offerings,” he says.

With a range of products and services such as Western Union is currently assembling, at what point does it cross over into becoming a competitor or alternative for traditional bank accounts rather than simple a payment services provider?

“It is a combination and a partnership. One of our key growth engines in 2012 has been account-based transfers, providing individuals and businesses with services that banks cannot give them, but it has been a joint effort to create partnerships.”

Away from the giant international banks, many regional banks are looking to provide their customers with international services that are below the threshold, in terms of cost and complexity, of traditional correspondent banking. In particular, small- and medium- sized businesses can have needs for international payments or transfer services on an ad hoc basis that their banks don’t have the networks and technology to provide.

Currently they might use credit cards for such transactions, but it is not an ideal solution, and it is an area into which Western Union can step, closing the gap for the banks and their smaller customers. “It is much more of a partnership, and we are becoming much more associated with the banks,” he says. “Obviously they like to have a reliable partner to provide services that for them are too expensive and for us are a core business. Over time that means we can attract new consumers to the banking sector and they are potentially customers for other banking products such as loans and mortgages and so on.”

“We have invested $35 million in digital services – which is a combination of online and mobile – because we really believe in these technologies and we want to expand in these areas,” he says. “We see a lot of growth in these areas, so it is an investment where we can expect a lot of return. As well as online growing at 40%, account-based transfers up by 35% and mobile at 25%, so there is a huge potential  for double-digit growth with these technologies.”

With aggressive expansion plans like this, payment providers such as Western Union are inevitably seen by some traditional players in the payments market as less of a partnership opportunity and more of a threat. One complaint that has been heard with increasing frequency over the past few years is that they are able to develop new channels and services more rapidly than banks because they are less burdened by regulation.

Alvisini dismisses this point of view, and says that regulatory compliance is not a burden, but a positive. “We consider it as a key asset,” he says. “One of our key strengths is our best-in-class compliance. We invest heavily in this area of the business – £100 million a year – and we have just taken on 600 people across the globe to work in this area. Compliance is an asset for the company, and we have a strong focus on it, collaborating with the agencies across the different countries.  We have scale, we have technology and we have relationships with the different regulators to support them and to become a leading operator with best-in-class compliance procedures and processes.”

As a US company operating on a global scale, Western Union is bang in the middle of the firing line when it comes to the increasingly extra-territorial application of US laws, such as the recent punitive approach to AML breaches and the imminent introduction of FATCA, the Foreign Account Tax Compliance Act, which will require anyone moving money over a certain threshold for US citizens to demonstrate to the US Treasury that no tax is liable on that money, no matter what currency and no matter where.

 “We have closed down part of the business in Mexico, that simply didn’t have the structure to handle the AML requirements that were necessary for compliance. That obviously has an impact on the business, but as we consider compliance to be one of our key differentiators we are prepared to pay a price for that,” he says.

The burgeoning alternative payment field, and the rise of mobile-based P2P services operating in developing areas to service the unbanked means that Western Union is facing increased competition across the board. “We are not the only player, but we think we  are at the forefront: we have invested heavily to face these challenges and have the assets to succeed in the next few years because our base is very, very solid,” says  Alvisini. “With 510,000 locations across the globe, no-one can really touch us on reach, which is attractive. With the partnerships we have put in place such as MasterCard for pre-paid cards, and the growth in the electronic channels, we see the combination of capabilities as the real differentiator in the coming years.”