Western Union and Mastercard Bring a New Twist to Money Transfers

The Western Union Co. this week positioned itself to fend off competition from peer-to-peer payment services by partnering with Mastercard Inc. to integrate Mastercard Send into its money-transfer service.

The service, which is expected to be available in only the United States starting in early 2018, will allow consumers to send money from a bank, debit, or credit card account directly to someone’s debit card account by entering the recipient’s 16-digit card number using Englewood, Colo.-based Western Union’s WU mobile app or WesternUnion.com.

The agreement with Mastercard is significant for two reasons, says Richard Crone, principal at Crone Consulting LLC, San Carlos, Calif. First, it streamlines the remittance process for the sender and recipient. While consumers previously could initiate a money transfer through Western Union using a debit or credit card, funds were either sent to a Western Union office or a bank account, which required entering a routing and account number. In some countries, funds could be sent to a mobile wallet, Western Union says.

“This removes some of the barriers to remittance,” says Crone.

Secondly, and more importantly, sending funds directly to someone’s debit card account positions Western Union to compete with P2P payment services that initiate payments from a consumer’s demand-deposit account, such as the bank-controlled Zelle and PayPal Holdings Inc.’s Venmo. These competitors have been nibbling away at Western Union’s core money-transfer business and attracting business from some of its unbanked customers—a vital segment for the wire-transfer market leader, according to Crone.

“Adding this capability improves the customer experience and helps Western Union compete with the likes of Zelle and Venmo,” Crone says. “Western Union can’t grow, let alone survive, as a stand-alone entity without ubiquitous access to a worldwide debit network, which Mastercard Send gives it.”

Mastercard Send acts a central hub that enables funds to be sent securely in near real-time. To move money, MasterCard Send uses a process called original credit transactions, or OCT, in which a processor reverses a transaction through the bank card networks by acting like a merchant. Instead of flowing funds to the sender, the credit from the reversal goes to the receiver’s account, enabling near real-time payment. Mastercard Send launched in 2015. Visa introduced its version of OCT in 2010, and modified its rules in 2015 as services like Venmo, Square Cash, and Facebook Messenger developed.

“Western Union customers conduct millions of transactions a year, and now their U.S. customers will be able to send money directly to virtually any U.S. debit card in 30 minutes or less,” Leigh Amaro, senior vice president of Enterprise Partnerships for Mastercard, tells Digital Transactions News by email. “With Mastercard Send, Western Union customers have a powerful new way to send funds directly to the debit cards in the wallets of millions of Americans.”

Neither Mastercard nor Visa would disclose pricing.

If Western Union’s new debit service is a hit, the company says opportunities to expand it beyond the U.S. are likely to arise.

“Mastercard is well-positioned to support us in delivering innovations right across our extensive global footprint,” says Libby Chambers, chief strategy, product and marketing officer for Western Union, in an email to Digital Transactions News. “When a particular innovation works in one market we can jointly assess and plan for moving it to others.”

One way to make the service more appealing to consumers would be for Western Union to strike a similar deal with Visa Inc. to leverage its similar Visa Direct service, and even sign deals with larger PIN-debit networks, Crone says.

“This agreement is an acknowledgment by one of the oldest brands in money transfer that the new originating and receiving point for money movement is the debit card,” says Crone. “Why limit your options by making this deal exclusive?”