This article first appeared in The Edge Malaysia Weekly on April 27, 2020 - May 3, 2020
THE Covid-19 pandemic may have sparked more digital or cashless transactions in Asia, but it is still not feasible for the region to go completely cashless as yet. According to Western Union, the world’s largest money transfer group, businesses would be marginalising many people — more than half of the population of Asean — if they took an all-digital approach.
“Let’s start with the fact that 1.7 billion people, or 30% of adults worldwide, are unbanked. [Going] all digital leaves them out in the cold. That should not be an option. Even for those who have access to banks, many prefer cash. Cash is by far the most commonly used payment instrument throughout the world. The world average currency-in-circulation versus gross domestic product (GDP) ratio was 9.6% in 2016 (up from 8.1% in 2011),” its head of network for the Middle East and Asia Pacific, Sohini Rajola, tells The Edge.
Even in Malaysia, the use of cash seems to be increasing, she says. “The percentage of currency-in-circulation versus GDP and the value of ATM withdrawals increased in the 2011-2015 period. Not only did these numbers grow over a five-year period, they keep growing faster year on year. This is a good indication that cash plays, and will likely continue to play, an important role in the Malaysian payment landscape.”
Sohini points out that Singapore, too, remains a heavily cash-reliant society with about 40% of payments done via cash and cheques owing to the country’s ageing demographics, as per an S&P report last year. It is the same in Japan, where four out of five purchases are still made with cash.
“In other words, the world is still a long way from having a completely cashless economy that would function for everyone. The global economy and the global spectrum of customer needs and accessible technologies are too varied to try to move too fast on any one approach,” she says.
Sohini is of the opinion that businesses should take an omnichannel — rather than purely digital — approach. “A future with more payment options and more consumer choices is a future of vastly expanded opportunities for the world’s people and businesses. But it can happen only if we demand new ways of thinking about the payments ecosystem. The financial industry should step up to more inclusive innovation and offer consumers solutions regardless of where they live on the financial-services spectrum and embrace the complexity of a world where cash and digital payments co-exist far into the future.”
She goes on to say that leaders from the financial, technology and government sectors need to come together and rethink the future of payments innovation, starting with financial inclusion as a core value. “It’s not only the right thing to do — for businesses, it’s the only way to ensure full participation in the global economy.”
An omnichannel approach
US-headquartered Western Union’s omnichannel platform helps billions of people around the world, even those in the most remote locations, to send and receive money, quickly and easily.
“Western Union understands the importance of maintaining a multichannel approach to servicing a multigenerational user base. Our products are multigenerational because we’ve successfully been able to connect the digital with the physical, which includes a robust digital footprint, settlement, treasury and compliance infrastructure, and a vast global network of over half a million locations, and the ability to send money to billions of consumer accounts and mobile wallets,” says Sohini. As at end-2019, its network included over 550,000 retail agent locations in more than 200 countries and territories. Its digital money transfer service, via westernunion.com, was the fastest-growing part of its business in 2019.
In February, Western Union reported consolidated revenue of US$1.3 billion (RM5.7 billion) for the fourth quarter of 2019 (4Q2019), a 7% decline from that a year ago, but a 3% increase on an adjusted constant-currency basis. Its consumer-to-consumer (C2C) segment accounted for the bulk, or 86%, of revenue, at US$1.13 billion. Notably, westernunion.com accounted for 15% of total C2C revenue, having improved 17% on a reported basis and 18% on a constant-currency basis. Of the group’s five regions, C2C revenue from the Asia-Pacific region fell the most — by 10% on both a reported basis and constant-currency basis — even as total transactions declined 7% y-o-y.
“Our reported growth rates just reflect outbound and intra-Asia business and Asia is largely an inbound region for us. From an origination standpoint, the region represents about 6% of C2C revenues, as of 4Q2019,” says Sohini.
For the full year, Western Union’s consolidated revenue fell 5% on a reported basis but increased 3% on a constant-currency basis.
Sohini says Asia-Pacific is a great example of cross-border payments optimisation based on market demand. “Industries such as travel, e-commerce and freelancing/outsourcing have taken root in the region and the growth of those industries created demand for business-to-business/business-to-people cross-border payments that can keep pace with the growing digital economy.”
Meanwhile, amid the Covid-19 outbreak that has resulted in lockdowns in many parts of the world, Western Union aims to keep its digital and retail services operational, while taking care to abide by local regulations and guidelines.
“Given the dynamic situation, Western Union is recommending that customers experiencing local restrictions due to the Covid-19 pandemic use westerunion.com and the Western Union mobile app to facilitate transactions for payout into bank accounts and digital wallets, which is currently available in more than 100 countries. If sending money through retail is the only option, we encourage customers to be mindful of service interruptions or altered operating hours, based on local conditions and guidance from local authorities. We are encouraging customers to use the ‘agent locator’ to determine service hours in their area,” Sohini advises.
Western Union had initially forecast a low-single-digit revenue growth for its 2020 financial year. However, on March 27, it withdrew its 2020 financial guidance due to uncertainty over the eventual scale and duration of the coronavirus pandemic and its impact on the global economy.
It plans to provide an update on its views for 2020 at its upcoming first-quarter financial results announcement on May 5.
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