Q&A with David Schlapbach, Western Union

Western Union continues to be the market leader in the money transfer market, with around 14% of the global market. David Schlapbach, General Counsel and Executive Vice President of Western Union, took the industry perspective to the regulators in his speech at the 3rd Global Consumer Money Transfer Conference held in London last month. Editor Meena Kansal spoke to him afterwards to get his view point on other important issues surrounding Western Union's business in the sector.

Q: At the GCMT conference, Goldman Sachs' Elizabeth Grausam spoke of the US remittance market as a mature one. Other players and experts would disagree with this characterisation. What do you think?

A: At the moment, the US does appear to be a stabilising market for consumer money transfers. However, there are still plenty of opportunities for remittance providers there because the US economy continues to attract a large number of foreign workers who need to send money back to their families. Further, the domestic money transfer and bill payment markets in the US are very large and present some interesting opportunities.

Q: There has been a slowdown in the US-Mexico corridor. How has that affected Western Union? How does this US economic slowdown combined with market maturity affect Western Union?

A: We've noticed it, and we are starting to see that business begin to stabilize now. We were pleased with the performance of that business in the past quarter.
As economies change and remittance patterns alter, we learn as a company and as an industry—we see how customers behave under different circumstances. Western Union views this as an opportunity to meet customers' needs by providing new services, different distribution methods, new technologies, new services features, and new ways of reaching out to the shifting needs of our consumers in changing economies.

Q: You mentioned that India and China are potentially huge markets for mobile money transfers. Further, China Everbright Bank and Western Union signed an agreement to offer money transfer services in China. Two months ago, Western Union Financial Services Inc USA retained a 49% stake in its Singapore subsidiary. Does this represent a move eastwards?

A: First of all, we are a global company and do business almost everywhere in the world, which gives us an opportunity to move quickly as migration patterns change and business opportunities occur around the world. Certainly India and China, because they are large growing economies that both import and export labour, are very interesting markets for any remittance provider. We work closely with agents in both markets, including the post offices in both India and China, to understand those markets and to meet the needs of consumers there.

Q: Do you believe that banks and other money service businesses allowed by the Payment Services Directive will encroach on your market?

A: The Payment Services Directive is a terrific opportunity for our industry, because for the first time, it will give money remitters a single regulatory platform to do business throughout the entire European Community. It will help us and other remittance providers be more efficient in the way we do business because, if implemented as intended, it will create a more streamlined and simpler way to meet the needs of our customers faster and with more flexibility.

Q: Your company provides valuable service to millions across the globe. It is in your interest and theirs that remittances not be taxed. There is criticism that remittances are not being used back home for development. In what way is Western Union investing in these communities?

A: It's an important issue. A central part of our service is to provide money quickly to families of immigrant workers. We are proud of our ability to do that with the kind of service quality that people value. Remember that Western Union doesn't perform the service on our own. In most countries, we use agents to work with our customers, and these agents employ thousands of people throughout South Asia, Africa, South America and other parts of the developing world, who might not have employment were it not for the remittance industry. So the remittance industry itself, just by the fact that it operates, employs thousands of people in the financial services field who otherwise may not have an opportunity to work at all.
Further, Western Union as a company is very aggressive in giving back to the communities where our consumers live. We recently announced a $50 million program to donate funds for financial literacy, education and other needs that migrants have as they move into new economies.

Q: I have read statistics that say over 60% of remittances go towards providing vital support to families, such as food and even housing. What is your comment?

A: I think it's a mistake for economists or researchers sometimes to assume that money transfer recipients don't act in their own best interest. People know how to spend the money that they receive from family members working abroad, and they do it in a way that helps them build lives for themselves and their families in the own communities. They spend it locally, contributing to their local economies--they build homes, save for education, spend it on school fees, the way families everywhere do.

Q: Do you believe over-regulation is getting in the way of being fast and reliable?

A: I think it's important that regulation be balanced – that we have regulation that protects consumers' needs, so that people feel confident that when they send money through any money service business, their money is safe and will be paid as promised. Sometimes regulators do not understand our industry as well as they need to, and that's why there are important benefits of organisations like IAMTN because they help industry and regulators talk to each other.

Q: The regulatory issue is huge for a company the size of Western Union. In your speech, you called for a risk-based system of regulation. Please comment.

A: It is important for regulators to understand what risks the remittance industry presents and what risks it doesn't. Because money remitters do not accept deposits or make loans, we don't pose the same kind of risks to the public or the financial services system that a bank, for example, does. So the kind of capital requirements that regulators impose on banks would not be appropriate for Western Union or other money remitters. Money transfers are self liquidating--when somebody puts money into the Western Union service, it's available for payment in 10 minutes, and the vast majority of our remittances pay out in 24 hours. So we do not hold customers money for very long. The risks that we present to the financial sector and to the consumer are very different from the risks that banks present.

Q: Please comment on your recent acquisition of a 25% stake in GraceKennedy in the Caribbean. Taken with the Singapore stake acquisition, is there a pattern here?

A: We have made similar investments in agents five or six times now, and for a variety of reasons. For example, we have invested in agents in Greece, Italy and France, Ireland and the UK, now in Jamaica and Singapore. These joint ventures give us an opportunity to work closely with companies with an entrepreneurial attachment to their local communities, and they give us access to local knowledge and the ability to develop country-specific programs and services more quickly than we might on our own.