The year may be only two months old, but 2019 is shaping up to be notable for a series of large — and even mega-sized — deals in the payments space. There was the announcement that Fiserv would buy First Data, followed by the news that BB&T and SunTrust would merge in the biggest bank deal to create the sixth-largest bank in the U.S.
In the latest sign of strategy done through deal-making, Western Union, of course, said on Thursday (Feb. 28) that it would sell its U.S. bill payments business to ACI Worldwide in an all-cash transaction for $750 million. According to Hikmet Ersek, CEO of Western Union, the deal helps Western Union sharpen its focus on building out cross-border payment capabilities, with an eye toward technology-driven initiatives.
As the executive told Karen Webster in an exclusive interview, just minutes after the deal was announced (in fact, he said final sign-off took place on Thursday), the Western Union roadmap is on cross-border, cross-currency fund flows done digitally and over mobile devices, well beyond what is considered today as Western Union’s firm hold on the global remittance space.
The Details So Far
The details, as initially disclosed on Thursday, are thus: ACI is acquiring Speedpay, and the combined entity will serve 4,000 customers with bill payment services across a range of verticals, such as consumer finance, government, mortgage payments and utilities. The market is a large one — as in U.S. bill payments accounted for 15 billion transactions last year — and is growing at mid-single-digit percentage rates.
In his conversation with PYMNTS, Ersek said Speedpay remains focused on the U.S., and fits in “better” with ACI Worldwide’s own desire to build operations there. Through the last several years, Ersek noted, he has focused Western Union on creating a cross-border platform that enables cross-currency transactions. Domestic-only businesses, like Speedpay, became increasingly out of step with that vision, in addition to, as he noted, being a declining business for the company.
The sale of Speedpay to ACI, he said, will give Western Union a chance to monetize a non-core asset and, at the same time, train a laser focus on the digital expansion of its cross-border payments platform.
Opening To Third Parties
Those digital expansion efforts, Ersek said, involve expanding access to the Western Union website, which is now available in 60 countries, 20 of which were added in 2018. He told Webster that he intends to push that roster to 100 countries (and more) over time.
The efforts also include opening the Western Union network to the growing number of third parties with an interest in leveraging a global send/receive network that enables transactions in 200 countries and more than 130 currencies across a variety of payments methods, such as direct-to-bank and cash.
Ersek noted that his company’s burgeoning relationship with eCommerce juggernaut Amazon offers a spotlight on how at least part of that global strategy will play out. In a partnership being piloted in 10 countries, consumers can order online with Amazon, then pay for their orders in cash at a Western Union location. The debut of Amazon PayCodes lets users pay for their purchases in cash, and expands eCommerce further into emerging markets. In other words, Ersek said, pay local, but buy global.
Separately, Safaricom is also expanding its network to enable its 28 million M-PESA wallet holders to send money digitally to anyone in any country in which Western Union operates. This capability is white-labeled to Safaricom senders.
Ersek said interest in tapping into the Western Union network also comes from some of the niche players that once represented corridor competition, but where his firm has remained a key player with considerable global scale. He noted that the leap from cross-border aspiration to the reality of execution is fraught with challenges, which can bedevil the FinTech firms that aim to create “mini versions” of Western Union in key corridors.
He added that digital, mobile-first FinTech firms largely overlook the relevance of cash-in and cash-out in a retail location. Cash remains a dominant payment method in developing economies, even though the send side of those transactions may be digital.
Replicating that flexible capability, at scale, is easier said than done, as regulation and compliance mandates may be tough to navigate. It’s why leveraging Western Union’s platform cross-border rails may ultimately prove out of reach for many of those firms, noted Ersek. That reality is already evidenced by the fact that at least some of those young tech upstarts — struggling to produce healthy bottom lines, and perhaps struggling in general — may be attractive acquisition targets for Western Union.
“In our case,” he told Webster, “we have the financial strength” to make acquisitions. “It is not about the cash [acquisition price] — it is all about the return.”
Ersek maintained that the investments already made in that platform strategy (in service to third parties) will reap rewards for Western Union, measured in terms of operational efficiencies and stable margins.
“In talking to people,” he said of third-party efforts, “they really start to realize how valuable our licenses in 200 countries are, how valuable our settlement system is, how valuable our compliance systems are.”
Ersek noted that synergies and benefits can be heightened for these firms, served by Western Union through the application of artificial intelligence across the massive global consumer data sets that represent a unique asset for Western Union.
Ersek said Western Union sees opportunity in the global P2P and B2C arenas, as use cases emerge that can leverage the Western Union platform to accelerate access to funds. In such cases, the need is triggered by an immediate need to send money to another person to, for example, top off their phone before making a call, or enable the mass payout of B2C transactions, such as with hospitals or pension funds.
In embracing those use cases, he noted, growth is still coming from existing businesses and the countries where Western Union operates — and certain countries and corridors are particularly attractive. He cited India’s 1.2 billion individuals. If only 2 percent of the population sends money abroad (and he said “not even receive money”), that is still twice the size — measured as a market — of Germany.
Looking to 2019, and with the Speedpay deal in the rearview mirror, Ersek said there will be two areas of focus: “Digital, digital, digital, digital … and mobile, mobile, mobile, mobile. ”