Western Union is beset on all sides by newer, nimbler companies wielding emerging technology to slice overhead from cross border payments, and it’s striking back by using its global bank relationships and huge infrastructure as an advantage.
Western Union on April 4 announced The Enterprise Digital Global Exchange (WU EDGE), a business-to-business platform that will initially focus on payments, with other services added over time. Businesses access WU EDGE through a Western Union cloud server, and transactions between WU EDGE participants are free; nonmembers pay normal Western Union fees.
"We want to connect [small to medium enterprises] with other businesses internationally and give them a more efficient way of working together," said Kerry Agiasotis, president of Western Union Business Solutions.
WU EDGE unifies accounts payable workflows with electronic invoice presentment and payment, enabling buyers and sellers to use the same platform for transactions in more than 130 currencies in more than 200 countries and territories.
"This is definitely a big opportunity for Western Union," said Rick Oglesby, a senior analyst and consultant at Double Diamond Group.
Global invoicing and remittance are a great challenge for many smaller businesses since local requirements make doing business across borders more complex, and there are few out-of-the-box solutions that enable "truly global" transaction processing, he said. "It's less of a technology problem and more of a logistics problem associated with managing currencies, local banking requirements, local infrastructure issues, local fraud trends, etc."
WU EDGE also uses Western Union's bank partner network to power direct transfers between buyers and sellers. An additional feature will allow what Western Union calls "near real time" service in 22 currencies, expanding to 49 currencies within a few months. The initial 22 currencies includes the dollar, pound and Euro, and the total list of 49 currencies covers 82% of global trade, according to Western Union.
The near real time service will not require correspondent banks to handle currency exchange. That's an important battleground in cross border transactions as more e-commerce merchants seek new customers and partners in international markets; and digital transfer startups use blockchain, the distributed ledger technology used with bitcoin, to allow transactions without the expense of working with correspondent banks.
And there's no shortage of challengers. Earthport, for example, added Ripple's virtual currency technology to enable cross border payments in more than three dozen countries without using a correspondent bank. D+H recently extended its global payment hub to include a distributed ledger to connect bank networks, enabling business-to-business transactions in real time without a correspondent bank.
Align Commerce uses a blockchain to move cash across borders, allowing each party to pay in his or her local currency, and Currency Cloud is using a similar model to achieve the same outcome. Other examples include WorldRemit and Azimo, which use mobile technology as an alternative to money transfer agencies.
The argument against correspondent banks is they add time and expense to international payments.
Western Union's Agiasotis argues the extra steps can be avoided by using his company's vast network of local bank relationships, which along with Western Union's existing and planned future services can augment the free near-real-time transfers in the initial currencies.
"This is something that's been in the making for two years and is from a foundation that we built as a payments provider for many years," he said, adding it's taken Western Union "a long time" to build that network and pair it with its proprietary payments technology. "If it wasn't for that foundation it would not be as powerful."
Western Union's brand is also a big help, Oglesby said. "The ability to be recognized in multiple countries around the globe is a very big deal since trust and payments have to go together," he said.