The recent jump in digital commerce has made international payment processing a hot target for fintechs, but Western Union contends its established network provides a way for banks to boost their own cross-border reach.
“For a long time we were kind of alone in the world. Now everyone wants a piece of our business. The startups and the banks,” Jacqueline Molnar, chief transformation officer at Western Union, said during American Banker’s Card Forum event, which took place Sept. 28-30.
Molnar pitched banks on the idea that partnering with Western Union would help them meet the demand for low-volume international payments. She argued that working with Western Union’s online and agent network is easier than building an ecosystem from scratch.
“This is a space for banks, but in a partnership fashion as opposed to getting into the business of moving international payments $500 at a time,” said Molnar, who was a schoolteacher in Hawaii before moving to Denver, where Western Union is headquartered. She has also has also worked on Western Union’s compliance and fraud risk efforts.
TD Bank offers branded Western Union transfers as part of a menu of options that include Visa Direct and the bank’s own account-to-account service.
“Banks would be foolish to try to replicate that network,” said Jonathan Prendergast, head of U.S. payments strategy for the $1.7 trillion-asset TD Bank Financial Group, who also spoke at Card Forum.
The partnership with Western Union is a way to broaden access to digital payments as much as possible, and to ensure the bank is adapting to any change in consumer preferences for new or different payment options, according to Prendergast.
“Change is going to happen. Real-time payments are coming, digital wallets are here. Peer-to-peer with Zelle is here,” Prendergast said. “If you are a bank, bring in people who will embrace this change.”
Western Union works with other payment companies such as Brightwell, Pathfinder Group and Juniper Payments; and banks including Citigroup, Credit Agricole and others.
The transfer company faces a lot of competition from fintechs, both for bank partnerships and its consumer business.
Blockchain-powered companies like Ripple use distributed ledger technology to add speed to — and remove cost from — international transfers and e-commerce purchases by removing correspondent banks that manage foreign exchange and local compliance.
More challenger banks and technology companies are joining the cross-border payments fray. Google has partnered with Wise (formerly TransferWise) to build an international payment service for Google Pay, with the U.S./India and U.S./Singapore as the initial corridors.
And Revolut, the London-based challenger bank that has its roots in mobile payments, has made remittances between the U.S. and Mexico a top priority of its U.S. expansion, despite the presence of numerous competitors such as PayPal. Xoom, PayPal’s remittance subsidiary, allows U.S. customers to send funds directly to bank accounts and debit cards in Mexico.
All of these companies have opportunities for growth. Nearly half of millennials and Generation Z consumers began making digital money transfers more frequently during the pandemic, with nearly 40% of all consumers using the services more often, according to research from Arizent, American Banker’s publisher.
“The shift to digital is here to stay,” Molnar said, adding the pandemic’s impact has caused transfers to increase for use cases such as gifting because people can’t deliver “cash gifts” in person as readily as in the past. The company has enhanced its processing capability to manage the resulting spikes in volume.
“People who have adopted a more digital way of moving money are going to continue to do that,” Molnar said.
As digital payment apps made correspondent banking less necessary for international transfers, Western Union focused on building relationships with banks and other large corporations to offer real-time money movement in person and online. In an earnings call in late 2020, Western Union CEO Hikmet Ersek said the appeal for banks was reducing the cost and logistical challenges of managing an international correspondent banking network.
Walmart earlier in 2021 partnered with Western Union, allowing it to open stores alongside its rival MoneyGram. The Western Union-Walmart partnership covered 47,000 stores as of May . Western Union has also partnered with Google and Facebook Messenger to power cross-border digital transfers. Western Union’s long-term plan is to turn its digital business into a broad base of services that includes banking and financial services.
During Card Forum, Molnar noted Western Union operates a bank in Vienna that could support added services such as micro loans. “There is value in one-stop shopping for customers to do multiple things on one platform,” Molnar said.
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