This article first appeared in The Edge Malaysia Weekly on December 17, 2018 - December 23, 2018

THERE have never been more options for cross-border remittances than at the present time. On top of online transfers, the market is filled with digital platforms — the likes of PayPal — and now, cryptocurrencies.

These modern business tools have disrupted the way established players like Western Union (WU) operate, depending largely on their vast physical networks of merchants and partners.

It was only recently that WU took a big leap into the digital space — into web and mobile apps. This year, the company expanded its payment platform and mobile app to over 50 countries, including Malaysia, where the digital push was launched last month. The 50 represent just a quarter of WU’s network in more than 200 countries.

So, why did a dominant market player like WU take so long to make a serious move into the digital realm?

It is all down to the market trend, says Western Union Payments (M) Sdn Bhd regional director Steven Wong, insisting that WU is not late to the game at all.

Citing online shopping as an example, he says until recently, people were wary about the web and avoided buying big-ticket items on it. “It is only now that even in the business of remittance, you can see customers getting more comfortable with online transactions,” Wong tells The Edge. “We are everywhere but there was a perception issue [of Western Union being an expensive service].”

Its online service seeks to change that — now, it costs 99 sen flat to transfer up to RM3,000 to any bank account or cash pick-up location worldwide. Of course, you could remit up to RM50,000 but that would entail over-the-counter cash payment, which costs RM5 per transaction. The company conducts a know-your-customer (KYC) process for transfers above RM3,000.

The low cost is a result of WU’s compliance with standards and laws, which many argue is an additional cost burden. Many other digital-centric players pay less attention to compliance, partly to pay less to run the business.

But as a trusted brand, WU has become a participant of the Malaysian Financial Process Exchange (FPX) and link the gateway to its own extensive digital network, making its remittance process quick and cost-effective.

With online-to-offline solutions now expanding, the group has essentially covered almost all forms of remittance transactions across the value chain. “The idea is to provide clicks-and-mortar services,” says Wong.

Indeed, unlike WU, digital platforms lack first and last-mile offline cash channels. Banks have them but they charge higher fees.

Typically, most cross-border transactions get charged at the sending point and the receiving end and are also affected by the exchange rate. Others are charged a percentage of the sum sent.

However, in WU’s case, only the sender needs to pay. “In Malaysia, we have very competitive FX rates as well,” says Wong. “They are all immediately available on the website and the app, so you know how much the receiver will get — no hidden charges.”

Keeping the revenue and expanding market share

Some 80% of WU’s US$1 billion annual cross-border remittance revenue globally comes from the consumer-to-consumer (C2C) business, alongside other services such as business-to-business (B2B) and consumer-to-business (C2B).

Many would argue that WU’s competitive service fee can only mean that it has to work hard to boost its market presence, possibly at the expense of revenue.

According to Bank Negara Malaysia, e-remittance represented 12.3% of total remittances in Malaysia last year. Outbound remittances totalled RM33 billion at an average cost of 2.96%. By comparison, a RM3,000 remittance via WU at 99 sen represents a transaction cost of 0.03%.

WU does not make available its market share, transaction volume and value but global industry watchers estimate that its market share in terms of remittance value stood at 12.5% or more than US$75 billion last year.

Assuming all of WU’s transactions across Malaysia were made online, this would translate into a revenue of RM1.36 million from a 12.5% market share of RM33 billion of outbound remittance value.

But low fees or FX rates in one segment or corridor are usually offset by higher rates elsewhere. Globally, WU’s brand commands a pricing premium of an average 15%.

Meanwhile, digital revenue represents just under 13% of consumer revenue at present. “It is worth noting that cash still rules in the digital economy in spite of the digital inclusion we see today,” remarks Wong.

“A decade ago, 85% of the world’s payments were conducted through cash and cheques. Today, 83% of the world’s payments are still through cash and cheques.”

Of millennials and new services

Apart from WU’s existing clients, Wong says, the digital platforms are aimed at attracting professionals who were more comfortable with banks before, as well as to serve the emerging market of millennials.

In Malaysia, he adds, WU’s transactions come predominantly from the migrant market, which comprises 1.8 million registered foreign workers. “What we foresee is the migrant market getting younger — they are the new generation, the millennials, who are used to gadgets.”

It is worth noting at in line with its aggressive digital push, the group has embarked on a logo rebranding campaign.

Meanwhile in the US, WU has partnered online shopping giant Amazon, leveraging its own money movement platform to make it easier to shop globally and pay locally.

These developments should breathe fresh life into the WU brand, although nothing is set in stone on collaborations with local shopping sites or other e-payment services here.

In the US, WU’s digital approach is working — 80% of its digital platform users there are new customers or have not used its services in the past few years. Cannibalisation from its cash-transfer clients stood at a low 2%.

And despite reduced engagement at its agent locations — 30% of all its locations did not experience any money transfers in 2016 — there is no plan to shrink its physical presence.

As at June, WU’s global footprint covered more than 550,000 locations across more than 200 countries. Last month, Western Union Malaysia partnered Merchantrade Asia Sdn Bhd, adding another 450 outlets to its 2,400 locations in the country.

“Rather than looking at the legacy of its widespread physical network as a burden in terms of costs, WU intends to leverage it as a strength as it seeks to offer its services online,” says Wong.

Western Union Co is listed on the New York Stock Exchange. As at Dec 10, its share price had declined 3.73% year to date to US$18.30 apiece, giving the company a market capitalisation of around US$8.1 billion.

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