To Coinstar Inc., the future of international remittances is all about automation — hopefully involving big, green machines.
The Bellevue, Wash., company is known for its omnipresent coin-counting kiosks, but now it wants to take on the remittance giants Western Union Co. and MoneyGram Inc.
Coinstar is betting that turning a sometimes-tedious interaction with a cashier into a self-serve transaction will help it establish itself in the transfer market.
"We want to segue the consumer from full-service at a desk to self-service at a kiosk," Steve Verleye, Coinstar's chief administrative officer, said in an interview.
Bruce Cundiff, a director of payments research and consulting for Javelin Strategy and Research, agrees that focusing on automating the remittance process could let Coinstar carve out a space for itself in this competitive market.
With its kiosks, he said, Coinstar has the chance to "build the better mousetrap" in remittances.
However, until that is available, Cundiff said marketing Coinstar's services will be "a challenge" because it is so similar to its better-established rivals.
Coinstar's current services are not automated. Senders and receivers must both interact with human agents. Verleye said the company is not working now on automating the remittance process, and is not certain when that function might be availalble. First it's focusing on expanding its network.
In Coinstar's first-quarter earnings report, it said it had 18,400 coin-counting machines. The company also operates a variety of other automated kiosks, including 15,400 DVD rental machines.
Its ambitions in the transfer market date to its June 2006 purchase of Travelex Money Transfer Ltd., a U.K. remittance company that served Europe, Asia and Africa. Coinstar bolstered its capabilities in January 2008 by buying GroupEx Financial Corp., a remittance provider with extensive operations in Latin America.
The Travelex purchase delivered a relationship with China Construction Bank, which at the time was delivering remittances on behalf of Travelex in about seven Chinese provinces. Coinstar last week announced a significant expansion of that partnership; by yearend the Beijing financial company is expected to be delivering Coinstar transfers across that country.
Verleye said that expanding its partnership with China Construction Bank is a major advance, and resulted in part from Coinstar's efforts to automate the transfer process. He said that when Coinstar inherited the relationship, the bank handled remittances "with some manual processes, so it was just a little bit more difficult" than doing the work electronically.
But Coinstar was able to connect its systems to the bank's, which "makes all of the transaction processing simpler," Verleye said. And "that enabled as well the expansion into the other provinces," he said.
Besides China, the leading countries receiving Coinstar remittances are Mexico, Romania and Guatemala.
Coinstar's strategy is to work with banks in the receiving countries to make its service widely available, in the hopes that recipients will ask senders to use its network.
The issue "is just building up brand awareness in the countries that matter to the money transfer customer" on the receiving side, Verleye said.
The Coinstar brand is far less known in countries like China and Mexico where Coinstar does not have a coin-counting business.
"That's why we typically choose banks on the receive side," Verleye said, so their strong brands can make up for Coinstar's lack of visibility. China Construction Bank is "ubiquitous and they're also trusted," he said.
Verleye conceded that his company still has work to do on the sending side of the equation.
In the United States, Coinstar's coverage is mainly focused on New York and New Jersey, though it plans to expand to other areas with large Chinese populations, such as San Francisco and Los Angeles. Customers now must visit transfer agents to send money.
Only after Coinstar has built out its network and created a demand for its services would it attempt to shift its customers to kiosks, Verleye said.
"It's not so much a technology hurdle," he said. The biggest barriers are training customers to use a machine instead of talking to a cashier, and developing "regulatory comfort level with" self-serve transactions.
Coinstar would not be the first company to offer remittances through kiosks, though Verleye said some of the other efforts are "not getting much traction."
For example, Cardtronics Inc. offers MoneyGram transfers through its Vcom kiosks installed at some 7-Eleven Inc. stores.
Cardtronics acquired the Vcom machines along with the rest of 7-Eleven's automated teller machine network in 2007, but it has struggled in the past to make the multifunction Vcoms profitable. Last year it said it relocated many of the machines in an effort to increase usage.
Western Union and MoneyGram allow transfers to be initiated online, using credit or debit cards, or transfers from a customer's bank account. Credit card transactions are often considered cash advances, which carry higher interest rates than purchases, and drawing the funds from users' accounts requires the remittance company to debit those accounts, which can slow the process.
Cundiff said several companies are looking at mobile phones as the next big remittance tool, but would likely require people to complete transfers by visiting agents.
Nicole Sturgill, the research director for delivery channels at TowerGroup Inc., an independent research unit of MasterCard Inc., said Coinstar's challenges will be mostly regulatory, proving that kiosks can satisfy know-your-customer and anti-money-laundering requirements.
But "from a technological standpoint, they're right," she said. "There's nothing stopping this."
