The passage of time is a bit unusual in financial services.
With the digitization of the ecosystem and rapid emergence of FinTechs over the last decade, any company in business longer than six months old seems old, and anything that’s been around for more than five years seems ancient.
In a world where adjectives like new, innovative and disruptive are vastly preferred over descriptors like experienced, established and knowledgeable, advanced age is not generally considered a major advantage. If anything, in the mile-a-microsecond environment favored in financial services these days, having been around for a while can even start to look like a liability.
That’s an experience the almost 170-year-old Western Union faced acutely a few years ago, confronted by a barrage of headlines questioning how much longer it would even exist. There was a time period in the mid-2010s when Western Union faced headlines saying it was a 20th-century solution headed for obsolescence in a 21st-century digital world where no one would be using cash, let alone needing solutions for moving it. The digital wallet was definitely going to be the firm’s undoing, an emerging line of conventional wisdom went.
Things are quite a bit different as 2020 is getting off the ground, Western Union CEO Hikmet Ersek told Karen Webster from the firm’s new Colorado headquarters for the latest PYMNTS Masterclass conversation. Instead of being asked about survival, the firm is asked about its white-label business for financial services providers, its B2B payments or its partnerships with players like Amazon globally and domestically. In short, Ersek noted, the questions are around how Western Union has transformed in response to digital to become the world’s leading expert on cross-border and cross-currency transfers.
That’s because age has advantages, Ersek said, even if those advantages aren’t the type that make headlines. It means having a board and investors who understood a vision that others may not have seen or had the confidence that management would do what they proposed: taking the firm’s core competency in global remittances and digitally enabling it to expand across verticals.
“We knew that to transform Western Union, we had to start with a long, hard look at what our core competencies are and how we could play to those strengths in the face of disruption in our industry,” he said. “We wanted to make digital a strength, add it to our retail, and be the world leader in agnostic money movement for both our own customers and others’ customers.”
“We have about 150 million customers worldwide, and we are building on that,” Ersek added, noting that with its agent network in 200 countries and account payout capabilities in more than 100 countries, Western Union can move money in 137 currencies within minutes worldwide. “Today, consumers are using us for money transfer, tomorrow for other financial services as well.”
And not just consumers, he noted, but providers and businesses. And while a lot of change has happened to make that possible, he told Webster, there is a thread that has run through the nearly 170 years Wester Union has been in operation — creating the touchpoints consumers want to enable transactions they trust.
The Power of Scale
The market for cross-border payments, Webster noted, has become a more crowded place while Western Union has been affecting its digital transformation, with a host of FinTech emergent players looking to carve up certain segments lining up on one side and a series of incumbents in the banks and the card networks also looking to expand their footprints. It’s not an easy needle to thread, Ersek told Webster, and it’s one that has made Western Union sure to “pick its cherries” carefully in consideration.
What has emerged, he noted, is the importance of starting with the firm’s extant strength — which is its scale and size in a global financial world where such a thing is incredibly difficult to build given the number of regulatory structures that doing cross-border and cross-currency transactions entails.
“I always say thank God it’s complex because that complexity is seen in competitive advantage,” Ersek said, noting that when Western Union looks at those emerging FinTech players, what they see is them taking on limited bites of the market-specific verticals or nation-to-nation corridors.
Moreover, he told Webster, what Western Union has come to see, and build after in the last two years especially, is that its competitive advantage is also its collaborative advantage. Both FinTechs and banks, he said, are looking for an entry point to bring financial services to a wider global consumer base.
The world is becoming a flatter place with more people heading abroad for education or medical care. All of those things require transactions capability — capability that Western Union, he noted, can uniquely enable: end-to-end, to and from almost any starting or ending point in the world, in any currency desired, in minutes or real time, and by any combination of digital and physical service required.
“The question we had to ask ourselves is if we can do this for consumers, if we can do these cross-border, cross-currency payments in one place — why can’t we do the same for businesses and financial institutions?” Ersek said.
The answer, the firm has realized over the last five years, is that it could do the same for businesses and financial institutions. And adding those entities has become a big part of its competitive future in a digitizing world. It’s what drove the firm to open its payments platform while labeling its capabilities, as well as what drove it into partnerships with firms like Amazon, Saudi Arabia Telecommunications and Russia’s largest bank. And ultimately, he said, it’s what’s driving the redefinition of its purpose around making it easy for any entity to move money around the world however they want — wherever they want.
Closing The Last Financial Mile
Cash’s eulogy has been written no shortage of times in the last 30 or so years, Ersek noted, and yet it persists and by some measures even grows. And while no one would say cash is king on a global scale, the reality is that in some countries and among some consumers, its crown is firmly in place.
If one wants to send funds to a consumer in Bangladesh, and they only have the capability to move those funds from one digital account to another, they have managed to get the money exactly 99 percent of the way there. The problem — that last 1 percent — is where that money gets spent on food, or education or healthcare or housing. In short, it is where that money is spent, and in many parts of the world, cash is what spends, and it is the only thing that spends.
And those places aren’t only in the developing world, he noted. Western Union’s partnership with Amazon started in Colombia — to offer locals the ability to pay cash at Western Union locations because digital payment methods aren’t well established. It now extends to the U.S., as there are some customers whose preference for cash precedes digital means.
And, Ersek told Webster, the simple answer is that there is no reason to stop them. The move to digitization in payments and commerce worldwide should no longer be about forcing customers to make a particular choice when it comes to financial services; the goal should be to enable everyone to shop where they choose to shop. Technology’s goal should be to enable as many choices as possible — and then let consumers set their use around their preference.
“Our focus is not about cash; rather it is about choice, and that is about moving money or making payments for people everywhere in whatever way they want and need it,” he said. “We also see the cash issue as an issue of economic inclusion, which is a core value of ours.”
Digital will increasingly figure into that preference — it is why Western Union has built so much capacity into mobile services — but for a lot of the world, and for a lot of transactions, that answer will also involve cash, at one end or both, for decades to come. Understanding what each customer needs and changing to meet those needs — rather than expecting the customer to change to meet the company’s offering — will not only be good for Western Union as a firm, but for the ecosystem of which it is a part, Ersek said.
“We really believe when money moves, good things can happen,” he said. “So, we want to be there to make sure it moves the right way.”