Article

Money transfer: The next killer app?

Check cashing, advertising and ticketing are all in the running as the ATM industry continues to seek its next 'killer application.' But money transfer is a sleeper that is coming on strong, particularly with a recently-announced partnership between Western Union and ACI Worldwide.

December 30, 2001

Is direct money transfer via ATMs the next big thing? The recent announcement of a partnership between Western Union Financial Services and ACI Worldwide -- along with some initiatives by others -- suggests the answer could be yes.

Western Union, which has offered money transfers for more than 130 years, wants to bring the service to more than 10,000 ATMs in the next year -- and that's just for starters.

"We hope to have that many deployed," said Chuck Templeton, vice president in charge of the ATM initiative for First Data Corp., Western Union's parent company. "The numbers bring up an interesting point, which is the ubiquity needed to enjoy the tremendous potential we see. While you don't have to be on every machine, you've got to be widely available for this to work. And with over 200,000 ATMs in the United States, we're obviously shooting for some high numbers."

Other companies getting into the ATM cash transfer arena include InnoVentry, a San Francisco-based deployer of advanced function kiosks, and AmStar Systems, a Texas-based developer of ATM hardware and software that is teaming with Dolex to focus on the U.S.-Mexico market.

Base hit

The Western Union-ACI partnership is particularly intriguing. ACI Worldwide -- with its BASE24 transaction-software platform -- counts among its clientele 53 of the top 100 financial institutions and seven of the top 10 ATM networks (totaling more than 62,000 ATMs).

Financial institutions using BASE24 thus need only to have software provided by ACI added to their existing platform to offer Western Union's money transfers. Western Union will do the bulk of selling the concept and ACI will facilitate the startup.

"ACI has a huge market share of the terminal driving software for banks and other organizations who drive their ATMs," noted Templeton. "Rather than working with each bank and doing individual deals, it's obviously more cost effective for us to do a deal with ACI."

Western Union's decision to expand the cash transfer market to ATMs comes in the wake of five years of sustained and significant growth.

"Since (First Data) acquired Western Union in 1995, we've had double digit growth -- well into the teens," Templeton said. "And when you look at that growth in the continued expansion of the global economy, we've certainly seen some really strong numbers. We think the added convenience of ATM transfer will certainly help that."

The job of convincing financial institutions to buy the service mainly falls on Western Union's shoulders.

"The way the deal is structured, most of the selling will be done by the Western Union people," said Rick DuVall, ACI's senior product manager. "They'll take this concept out to our current customers and make the incentive for them to provide this service. When one of our customers comes to terms with Western Union, they can call us and ask for the software to make it happen. That's when we'd step in."

Neither DuVall nor Templeton is willing to reveal the names of major ATM deployers showing interest. "But the interest level is very high," Templeton said. "ACI is of course alerting their clients and we're getting calls from them asking for information."

Templeton added that Western Union will receive its normal fee for customer transactions and that ACI gets a fee as part of their software processing, along with reimbursement from Western Union for the developmental effort.

The incentive for banks and other ATM deployers lies in the potential for new revenue sources from a percentage of the transaction fees.

"The attractiveness is, it's a new fee-generating product they can add to their terminal deployment," he said. "The surcharge boom that started five years ago is now over. There's not a lot they can do with it except increase the rates."

Unlike other possible revenue generators such as ATM advertising, money transfer is a known entity with a track record of success.

"We obviously have a tremendous market share for money transfers," Templeton said, "so you're looking at a product that's an existing, successful product today. You're not necessarily trying to drive new behavior to a new product in this case. You have a significant transaction volume that you can look at right away."

Money agent man

Western Union has the additional advantage of combining its existing 33,000 agent locations in the U.S. as part of the ATM money transfer system -- which means that recipients of cash transfers can use either an ATM or go to a Western Union office to get their money. 

"That's one of the real nice differences in the Western Union scenario," said DuVall. "The ATM network will be integrated with their local office infrastructure."

Templeton said the company would encourage customers to use ATMs instead of agent offices for cash pickups. While that offers a moderate economic advantage since no agent has to spend time processing a transfer, the prime reason is to promote the convenience aspect -- the key driver behind Western Union's strategy.

"We've made the fees exactly the same as they are at an agent's office," Templeton said. "Speed, reliability and convenience are our core values. We just had our 150th anniversary, so obviously we've established speed and reliability. So where our opportunity lies is through added consumer convenience. And we think ATMs will provide that."

If ATM money transfer catches on worldwide, markets where cash is still favored over credit and debit cards should open up lucrative possibilities. As for the market here, Templeton said the demographics indicate that the average cash transfer customer in America is very similar to consumers in general. That is, they tend to rely quite a bit on credit and debit cards as much or more than cash and use ATMs regularly.

"There's not much disparity -- actually, none -- so we don't have the hurdle in terms of (cash-transfer customer) adoption of ATMs," he said.

First strike

In addition to courting ACI's client base, a major part of Western Union's initial deployment will come from its existing agreement with 7-Eleven Stores and American Express, which owns and provides ATMs and Vcom units for the store chain. Vcoms are full financial service kiosks that are, as one analyst put it, "ATMs on steroids."

Western Union currently offers money transfers on some pilot Vcom units at 7-Elevens in Texas and Florida -- and plans on including the feature as the company rolls out Vcoms throughout its 5,300-store chain in the U.S. In the meantime, 7-Eleven has some 4,400 additional ATMs that are targeted for cash transfer as well.

"We plan on money transfer being part of Vcom as it rolls out," Templeton said. "In the interim, we plan to roll out ATM money transfer on their existing machines."

Across the border

Meanwhile, competitors are emerging. InnoVentry, based in San Francisco, is aiming for an initial rollout this fall while AmStar Systems of Carrollton, Texas, has teamed with Dolex in nearby Arlington and plans to offer ATM cash transfers to Mexico by mid-July.

"We've got it completed and should have the equipment rolling by the second week of July," said Dick Adams, executive vice president at AmStar. "A person can pay with credit card, debit card or cash, and their transfer can be terminated in more than 9,000 locations in Mexico."

That's a result of teaming with Dolex Dollar Express, a Hispanic-run organization and subsidiary of the Ixe Bank that, according to Adams, does more than $1 billion annually in money transfers from the U.S. to Mexico. AmStar's ATM machines will first be available here while, in Mexico, Dolex's extensive infrastructure of cash pickup points at company locations, post offices, banks and retailers will be used.

"They had a closed network before where you'd go to one of their stores here in the United States, originate the transaction, and send the money back to someone in Mexico," Adams said. "The thing they like about us is that, since we're both a manufacturer (of ATMs) and a network processor, we can give them an electronic self-service center to originate transactions. Eventually, they'll automate the receiving stations as well."

Adams said he was "flabbergasted" to learn about the presence of Dolex, which is located only 20 miles or so from Amstar's corporate headquarters. It took a meeting by the Mexican government for the two to meet.

"They're probably the best secret in the United States right now," Adams said. "We felt really ignorant that such a great company was so close to us and we didn't know."

InnoVentry, which includes Capital One Financial and Wells Fargo & Co. among its investors, plans to add cash transfer to its line of RPM automated financial kiosks and also has its sights set on the Mexican market.

"We do view the U.S.-Mexico market as an obvious target for our service," said Gil Roeder, InnoVentry spokesperson, "especially given the location of many of our machines across the Southwest and the relatively high proportion of RPM customers who are recent immigrants or who have immediate family members in Mexico or other Latin American countries."

Will the ATM cash transfer service catch on? Western Union's Templeton is optimistic that the popularity of ATMs in general -- and his company's success with cash transfers in particular -- make for a promising scenario.

"In general, with the focus groups we used across the country, ATMs are almost to the point of being perceived by consumers as a utility," he said. "In their cars going to work, they always expect them to be widely available and convenient. So the idea that you could purchase a service at a location where people feel in control of their own destiny is extremely attractive. And without any increase in cost."

It's a formula that likely will be scrutinized with increasing interest in the coming months.