Western Union is adopting a vastly different use of Apple Pay than what banks and merchants have so far considered.
It is enabling Apple Pay as a funding mechanism for money transfers and in-person bill payments at thousands of Western Union locations. This new spin on Apple's mobile wallet, which was designed for in-store and in-app purchases, may spur banks to rethink their approach to money transfers.
"That Apple Pay consumer is clearly 'banked,'" said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "That consumer is using Western Union to transfer money because the bank can't or it charges higher fees."
Apple Pay will be available for Western Union transfers at more than 7,600 Walgreens and Duane Reade locations across the U.S. Consumers must register their debit card on their mobile device and ensure their bank supports Apple Pay. Consumers then pay by holding their phone near the contactless reader with their finger on the Touch ID fingerprint sensor. The funding account's details are not shared with the Western Union agent.
"I'm not sure that this use case was envisioned when Apple Pay was developed," said Thad Peterson, a senior analyst with Aite Group. "I would think that Apple would be exploring more direct person to person transfers with its own platform."
There is an opportunity for banks to work with Western Union to enable Apple Pay for their own customers. Western Union partners with U.S. Bank, for example, on a transfer service and it uses banks to quickly scale other technology initiatives through its partnership with the vendor Fiserv.
While a distinctive offering, Western Union may face challenges in gaining usage for Apple Pay, given the existence of Western Union's own mobile service and the lack of credit card support, analysts said.
"I wonder how many individuals would opt to use Apple Pay at a kiosk instead of either an online solution or simply paying cash," Peterson said.
Apple and Western Union did not return requests for comment by deadline. Apple Pay launches at Western Unions flagship location at 1440 Broadway in New York, with more agent locations to follow.
In a press release, Western Union said accepting Apple Pay was in keeping with the company's blueprint for the future, and addressed its customers' needs and preferences. The company also cited its own analysis that revealed 60% of migrants own a smartphone, in line with the "general population." The Western Union analysis also found that more than two thirds of migrant international money transfer senders and more than 80% of non-migrant international money transfer senders own a smartphone.
Western Union did not respond to questions on whether it plans to support Apple Pay as an option within Western Union's own mobile app.
"Until Western Union integrates a money transfer app into Apple Pay, eliminating the necessity for the customer to go into a Western Union agent to initiate the transfer, I doubt they have actually addressed their customers' primary needs and preferences or demonstrated innovation," Sloane said.