Though some bankers are encouraging the industry to compete against remittance specialists, U.S. Bancorp, which has tried doing so, says it makes more sense to continue working with such firms. The Minneapolis company announced in March that Western Union Co. will replace MoneyGram International Inc. as the provider of money transfers in its 2,791 branches in May.
Even banks with extensive delivery systems cannot match Western Union's network of more than 375,000 agent locations, U.S. Bancorp said. "Probably the most important thing is just the reach," said Trent Spurgeon, senior vice president of consumer product management at U.S. Bancorp. "I don't want to build a 365,000-agent network around the world. I'd rather leave it to someone who's an expert."
In recent months financial institutions of various sizes, including Wells Fargo & Co., have urged other banks to develop their own remittance programs as alternatives to specialists like Western Union and MoneyGram. According to this argument, if more banks offered remittance services, consumers would be more aware of bank offerings and thus more likely to become bank customers. But for U.S. Bancorp, that argument has its limits. "A lot of consumers, they really gravitate towards and are comfortable with the Western Union-type model," Spurgeon says. "It's a brand they recognize. It has a trust factor."
U.S. Bancorp started an independent money transfer business in 2003 but began dismantling it in 2006 - in part, he says, because it could not match the reach of companies like Western Union. "If you look at some of the other programs that banks have built, where it may be dependent upon access to an ATM or it may be dependent upon being close to a specific bank in a certain country, those can all be limiting barriers."
Observers say that in the current environment, Western Union and MoneyGram are likely to find more interest from banks looking to enter the remittance business. "One of the upsides is to get a supportive brand that can drive volumes, but the downside is that you are not building your own brand," says Gwenn Bezard, a research director at Aite Group LLC.
Wells has been "fairly aggressive over the past few years in developing relationships with banks in recipient countries," and it has been "committed to that business for a long time now," he says. But "for most banks, it makes more sense to partner with a MoneyGram or a Western Union."
Stewart Stockdale, Western Union's president for the Americas, says the deal with U.S. Bancorp is part of his Englewood, Colo., company's "go-to-market strategy" to do more business with banked consumers.
Western Union says such customers represent as much as $134 billion of potential business. It works with small banks in the United States, Stockdale says, and it is hoping to find more partners in U.S. Bancorp's league.
Neither company would discuss the financial terms of the deal. In its annual report, Western Union says most of its revenues come from the fees consumers pay while "we generally pay our agents a commission based on a percentage of revenue."
MoneyGram's contract with U.S. Bancorp recently came up for renewal. Spurgeon called MoneyGram "a great company" but says Western Union had "the breadth, the depth and the reach" that its competitor, with 176,000 agents, could not match.
A MoneyGram spokeswoman says: "We work diligently to retain our loyal MoneyGram customers. ...However, from time to time we trade customers with Western Union." Next month, she says, MoneyGram will "go live with 1,200 former Western Union locations in the Philippines" that are owned by M. Lhuillier Financial Services Inc.
Despite a projected global slowdown in remittances, Spurgeon says he is optimistic about U.S. Bancorp's prospects in the business. He would not provide specific numbers, except to say its volume increased 20 percent last year.