June 8, 2015
People are talking a lot about startups and disruption, but it does not mean that the incumbents will always be disrupted. In this article, we will be talking about the remittance segment where money transfer incumbents like Western Union and MoneyGram are moving fast. Now, they pose a major threat to the startups that are banking on the digital channel of money transfer.
Western Union has been criticised in recent years for its over-reliance on the agent model. In response, the firm has aggressively adopted a multichannel approach. In the last couple of years, the conventional remittance service provider has invested heavily in technology to build up a robust multichannel system. The mobile initiative is part of a multichannel strategy that includes cash-based agent offices and westernunion.com. Recipients can receive transfers at an agent office or where available, via mobile wallets. Now, Western Union provides digital money transferring services in more than 24 countries.
The company has leveraged its strong network in multiple countries to achieve success in the mobile remittance space. With an intention to grow its mobile initiative globally, Western Union has focused on working with domestic mobile money service providers that have reached critical mass. The company clearly understands that the best way to grow rapidly is through partnerships. In the last couple of years, Western Union has struck partnerships with multiple banks, mobile network operators and mobile wallet companies. The intention is clear; to make mobile money transfer hassle free.
MoneyGram, another leading remittance company, is also trying to increase their foothold in digital remittance. The strategy for MoneyGram is to provide money transfer services to as many customers as possible via multiple channels. To accomplish its objective, the company has entered multiple partnerships with banks, mobile network operators and mobile wallet companies as well. MoneyGram feels that mobiles will be the most important channel for financial services in the next few years.
The initiatives of Western Union and MoneyGram are now paying off; both companies have witnessed a steady growth in electronic transactions in the last year. Around 6% of Western Union’s total revenue is contributed by it's digital business which includes westernunion.com and mobile money transfers. Around 15% of MoneyGram’s revenue is contributed by self-service channels like online, mobile, account deposit, ATM and kiosks. Let’s Talk Payments estimates that around 30% of the revenue coming from self-service channels will be through online and mobile channels.
The above figure is a clear warning for emerging players like Xoom, WorldRemit, Remitly. The combined revenue of all these companies does not account for even 50% of the digital revenue of Western Union and MoneyGram. If we consider only the digital revenues of these emerging players, it will be much lower than the combined digital revenue of Western Union and MoneyGram. Xoom claims that 49% of its revenue comes from mobile channels. The mobile component for other emerging players is also expected to be the same.
Now, the thing is that it’s just the beginning. Western Union and MoneyGram—who have heavily invested in technology to build a robust digital channel—have already started earning dividends. We expect that these traditional remittance providers will give a tough fight to FinTech startups who are banking on the digital channel of remittance.
Western Union has also slashed prices to compete with fast-growing rivals such as Xoom, WorldRemit, Remitly. It now seems to be an open battle between traditional providers and emerging FinTech players. It clearly shows that elephants can dance and would leave no stone unturned.