Western Union Co. is adapting its international remittance system to let people send and receive money through mobile devices — further advancing the role phones are expected to play in supporting electronic payments, in this case as a way to reach the unbanked.
The Englewood, Colo., remittance company said Thursday that it is working with the GSM Association, a Dublin trade group for 700 mobile phone manufacturers, to define a standard that carriers could use to develop payment applications linked to the Western Union network on the back end.
Matt Dill, Western Union's general manager of mobile, said in an interview Thursday that it expects carriers to develop applications for both receiving remittances and using their phones as "mobile wallets" for making purchases.
"The key thing to look at is not just the sender's experience, but also the receiver's experience," he said.
Many people who receive remittances lack bank accounts, and in many developing countries it may be difficult or inconvenient to travel to a place where they can receive cash, Mr. Dill said.
A mobile wallet function built into a phone would let people receive, and use, funds more easily, he said. By envisioning the cell phone as a spending tool and not just an end point, Western Union is "taking a much more global perspective on mobile remittances."
David Barnes, its executive vice president for the United States and Canada and for global strategic development, said mobile money transfers are "a new opportunity for Western Union to meet new and different consumer needs."
The system likely would be limited to low-value, high-frequency remittances, of about $100 or less, Mr. Barnes said, though the figure has not been finalized.
Steve Evans, the chief strategy officer of the GSM Association, said that mobile phone payments are more likely to be used by immigrants from developing countries who want to send money back home.
"The potential of this service is cash being put in the developed country, being transferred in through the Western Union network, and being transferred into the developing marketplace in a [mobile] wallet," he said.
The trade group's members support the Global System for Mobile communications standard, which AT&T Inc. and T-Mobile USA Inc. use in this country.
All three executives said that the main goal is to establish Western Union's payment network as a tool for moving funds to and from mobile phones, and that it is up to the carriers to develop the applications necessary to use phones to make payments.
Some carriers are expected to begin testing the Western Union system in the second quarter for receiving mobile remittances.
Western Union has about 312,000 locations in 200 countries and says its network was used to process about 17% of the world's remittance volume last year.
Several companies already offer a variety of payment services through mobile phones, and even though some services are not aimed at the unbanked, some providers are realizing that this demographic is emerging as an important target market.
Fidelity Express, a money-transmitting unit of the Sulphur Springs, Tex., grocery wholesaler GSC Enterprises Inc., announced plans Monday to offer a service aimed primarily at the unbanked and underbanked that would let people pay their utility bills with their mobile phones.
Obopay Inc. offers a person-to-person payment system that runs through mobile phones. The Redwood City, Calif., company often pitches its system as way to repay a friend who has picked up the check at a restaurant. But despite a marketing campaign aimed at encouraging young people to make these so-called social payments, Obopay said in August that a quarter of its users are unbanked. Many of these people are using the system as a prepaid payroll card and funding their accounts through direct deposit from their employers.
Mr. Dill discounted the idea of using mobile phones for small person-to-person transactions, such as splitting a check at a restaurant or coffee shop.
"We don't tend to see that as really the core use in the early years for this type of service," he said. "We think the real value are the people that are using mobile wallets in developing economies to introduce structured financial services that they don't have access to today."
The GSM Association plan was announced about a week after Western Union said it was working to link its bill-payment network with the bill payment software that the aggregation technology vendor Yodlee Inc. offers to banks. Western Union's bill-pay service is used primarily in stores, over the phone, or at billers' Web sites.
Penny Gillespie, the president of the Centreville, Va., advisory firm Gillespie International Inc., said she was impressed by Western Union's mobile plan but would reserve final judgement until the system is actually running.
The key make-it-or-break-it factor, Ms. Gillespie said, would be whether there are enough places other than Western Union locations where people could load and unload the mobile wallets, she said.
If the idea of sending remittances through phones does catch on, it likely will get heavy use, Ms. Gillespie said, because cross-border remittances are "usually repeat transactions" made whenever people have enough money to send back home.
The strategy of focusing on the unbanked also is wise, she said. "If you're trying to drive transactions in today's payment world, the untapped market is in this population." Though they do not use bank accounts, they are starting to favor prepaid cards and other alternatives to cash. "It's quickly becoming a noncash world."
