Money Transmitters Shrug off Recession, Downplay New Channels

U.S. automakers and lots of banks are finding their business models under severe stress, but not so money-transfer businesses despite a likely decline in transfer volume this year, according to new research from Aite Group LLC. The industry, especially big players such as The Western Union Co. and MoneyGram International Inc., seems well entrenched despite other companies and new technologies that could undermine its traditional agent-based business model, Aite concludes. “Money-transfer service providers are generally dismissive of the potential of emerging channels like mobile, transfers to prepaid cards, transfers from kiosks or ATMs, and transfers from prepaid cards to have any significant impact over the next few years,” the report titled “Money Transfers: Riding the Storm” says. “At best, they expect very marginal adoption by 2012.” Report author Gwenn Bézard, research director at Boston-based Aite, based his conclusions on interviews this month and in March with executives at 23 money-transfer organizations (MTOs), most based in the U.S. The companies are putting most of their energy into expanding their agent networks. Some 86% of respondents said they considered expansion of their sending agent networks as “important to very important,” and 73% said expansion of the receiving agent network was important to very important. In third place, far below at 41%, as important to very important was “developing online initiation” of money transfers. One reason the MTOs remain focused on their agent networks is incomplete development of other distribution channels for their services, according to Bézard. How government regulations will apply to new technologies and money transfers also remains a question, he adds. “A number of pieces to make it work are simply not there yet,” Bézard tells Digital Transactions News. Many MTO executives are cool to online transfers because of the potential for fraud, and most of their customers conduct transactions mostly in cash. Only 27% and 23%, respectively, consider developing transfer services to bank accounts and prepaid cards as important to very important. The MTOs don't seem to be fear banks, even though banks have slowly but steadily gained market share globally on the receiving side of the business, and to a somewhat lesser extent on the send side. But the MTOs “remain dismissive of their threat,” the report says. Indeed, on Monday, Western Union announced an agreement to provide money-transfer services to some 8,500 U.S. financial-institution clients of Fidelity National Information Services Inc., a Jacksonville, Fla.-based transaction processor. While Western Union and MoneyGram have been prominent names in the money-transfer business for many years, they exist in a still-decentralized industry. They are, however, gaining share through acquisitions and organic growth, according to Aite. Western Union grew its market share from 12.4% in 2005 to 16.9% in 2008, and MoneyGram from 2.6% to 3.9% during the same period. In addition, Western Union and MoneyGram play in many so-called corridors of money transfers between the U.S. and other countries, so they don't get hurt as badly as specialist transfer companies do when volume falls or if a price war breaks out in a specific corridor. While the basic business model seems strong, MTO executives told Aite they expect volumes in 2009 to be off by 7.3% from 2008, when volumes grew an estimated 6%. Volumes had been growing in the teens for most of the decade. The culprits are recession and the rising value of the U.S. dollar against other currencies, Bézard says. His respondents expect volume to grow 1.5% in 2010.