Established companies such as MoneyGram International Inc. and Western Union Co. long have been the forerunners in the funds-transfer market. Two startups, however, are seeking to provide alternative transfer methods using payment channels familiar to consumers.
Privier Inc. has developed ATM software that enables funds-transfer recipients to withdraw cash from any participating machine. And RegaloCard LLC has introduced a free mobile, card-based service that enables consumers in Canada and the United States to send funds to recipients in Central America.
RegaloCard and Privier do not appear to be immediate threats to the established players. However, as such new funds-transfer channels emerge, their innovative methods could have an effect on the market
“We are at a tipping point in the market,” says Gwenn Bézard, research director of Boston-based Aite Group LLC. “Moving forward, we are going to see a lot more channels and competition.”
Privier, one of the latest entrants to the field, plans to launch its service in 2011. The Charlotte, N.C.-based company wants to build an ATM network for person-to-person funds transfers in the United States, Puerto Rico and the Virgin Islands. All debit cardholders would be able to use the service.
Privier also is in discussions with electronic funds transfer networks.
The company is attempting to fill a void in that most financial institutions do not offer their customers basic P2P payment services, according to Charles Polanco, the company’s chairman and CEO. “This forces customers that need to make urgent money transfers to go outside of banks and use informal channels such as PayPal, Western Union and MoneyGram,” Polanco says.
Privier is working with an independent sales organization and two ATM manufacturers to launch the service. Polanco declined to name the companies. Privier then wants to add small financial institutions and credit unions to the network via ISOs and ultimately add large banks to the mix.
Privier has several specific features that might help separate it from the established players.
Under its fee model, the ATM operator would charge senders a flat $7.50 for transfers up to the $400 limit. Western Union and MoneyGram charge between $24 and $27 for a $400 transfer within the United States.
The recipient would have the option to withdraw the money from several different participating network ATMs deployed at such common off-premise sites as drugstores and supermarkets, which, unlike many funds-transfer agent locations, often operate around the clock.
To send cash, a consumer would use his debit card and PIN to access an ATM and press the “send cash” button on the screen to start the process. The sender then enters the recipient’s ZIP code to determine the nearest participating ATMs. The sender then enters the amount to be sent. The ATM operator ultimately deducts the funds from the sender’s checking account.
The sender receives a receipt with what Privier calls a money-transfer control number. The receipt also lists several locations where the recipient can withdraw cash. The sender determines how the recipient receives the 16-digit code, Polanco says. “The sender will provide the recipient with the number through a phone call, text message, e-mail, or whatever channel he or she decides to use,” he notes.
Polanco is not concerned with that method’s security or whether a third party could intercept the message. “The key would be, how would the hacker know that a certain text or e-mail has a code that would enable them to collect cash and where?” he says.
If a hacker did manage to withdraw money using a debit card, the funds would be linked to that particular card, Polanco adds.
Recipients need their own debit card to withdraw the sent funds. After using the card to access the ATM and pressing the machine’s “pickup cash” button, the recipient enters the 16-digit funds-transfer code. The recipient would see the transfer amount on the screen and initiate the withdrawal.
Privier’s target customers include parents with children in college and consumers who need cash in emergencies, according to a company presentation provided to PaymentsSource.
As Privier continues to proceed with its plans, RegaloCard is building its distribution network and attacking the funds-transfer market differently.
Under RegaloCard’s system, senders purchase a merchant’s prepaid card and scratch off an area on the back of it to reveal a PIN. The buyer then calls a toll-free number and enters the PIN and the recipient’s mobile-phone number. The recipient receives an instant text message that contains a redemption PIN to use to access the funds for use at the specified retailer. To complete a transaction, the cashier enters the recipient’s mobile-phone number into a dedicated terminal. The recipient then enters the redemption PIN to access the funds for payment.
Consumers may send as little as $10, but RegaloCard may reduce the minimum to $5. RegaloCard receives a percentage of the funds loaded into the card accounts from each participating retailer.
Gregory Keough, chairman and CEO Miami-based RegaloCard, believes the company has created a market for a funds-transfer option that previously was unavailable. The company has dubbed it the “micro-money transfer.”
“We’re fundamentally changing a very large business in money transfers, but at the end of the day our business concept is simple and easy to understand,” Keough tells PaymentsSource.
RegaloCard’s initial drawback is that consumers may use the funds only at specific merchant locations. Keough, however, does not view that as a negative.
Last year, consumers sent $8 billion using funds transferred to El Salvador and Guatemala, according to Keough. “About 80% of those transfers go toward everyday things like groceries, medicine and even electronics,” he adds.
Keough believes such use of transferred funds provides RegaloCard an advantage over traditional funds-transfer services because Salvadoran and Guatemalan immigrants sending funds back to their respective countries are assured the recipients will spend the funds at a specific retailer, Keough says.
For example, consumers may redeem a Burger King gift card purchased in the U.S. only at a Burger King in El Salvador. “That person doesn’t have to wonder if the money really is being used to celebrate a relative’s birthday at Burger King, ” Keough says.
At least one established funds-transfer company is watching these new methods with keen interest as the market changes.
“At this point, we don’t know if these products will become mainstream or if the consumer is still focused on the traditional money transfers” conducted at agent locations, says Rich Meszaros, MoneyGram vice president global product management.
Western Union did not respond to requests for comment.
Minneapolis-based MoneyGram has dabbled overseas with different channels such as mobile and an ATM service similar to Privier’s, but it remains committed to its core business. “When we look at the marketplace, the majority of our consumers are looking for a cash-based transaction [as opposed to RegaloCard], and that’s really where our global network allows consumers to walk in to an agent location,” Meszaros says.
MoneyGram has more than 200,000 agent locations worldwide.
Regarding how MoneyGram’s prices compare with those of RegaloCard and Privier, Meszaros believes convenience must factor in with such comparisons.
MoneyGram sets its pricing model based on the “entire value proposition to the consumer,” Meszaros says. The company considers such factors as the availability of the funds transfer worldwide and the ease for the receiver to secure the funds, he adds.
Despite more wallet-friendly services from RegaloCard and Privier, pricing “isn’t necessarily an important decision factor as one would think,” contends Red Gillen, a senior analyst with Boston-based Celent LLC. “What’s even more important is the trust factor,” he says.
Both MoneyGram and Western Union are established brands consumers easily recognize, Gillen adds. “The low-cost approach may not be the winning approach,” he says.
It remains unclear how much emerging technology will change the funds-transfer market.
Bézard believes mobile funds-transfer services will become mainstream in the near future. “The time has come for technology disruption in money transfers, and we’ve been talking about it for the past 10 years,” he says.
That technology disruption might not necessarily come from MoneyGram and Western Union, which may be more hesitant to embrace new technologies because of the potential negative affect they might have on their agent networks that have been in place for decades, Gillen adds.
