News

First Data fends off money transfer challenge from banks -- so far

July 30, 2003

GREENWOOD VILLAGE, Colo. -- First Data Corp., which handles more money transfers from the U.S. to Mexico than any other firm through its Western Union unit, slashed fees last year in a response to intense competition from Citigroup Inc., Bank of America Corp. and Wells Fargo & Co., among other financial institutions.

These banks and others have introduced money transfer services, many of which offer the option of recipients collecting funds at ATMs, with lower transaction fees than Western Union charges.

According to a Bloomberg News report, Western Union's decision to offer overnight delivery for $9.99, one-third less than the same-day service it began last year, helped it maintain market share, which some analysts believe is as much as 9 percent. (See related storyFirst Data meets analysts' estimates in 2Q '03)

Western Union's business transferring money to Mexico grew by 25 percent in 2003's second quarter, in line with the market's overall growth. For First Data, transfers between the U.S. and Mexico represent 7 percent of its total money transfer business, according to a March 18 Securities and Exchange Commission Filing.

By 2010, about $21 billion in money transfers will be sent from the U.S. to Mexico and Central America, according to the Washington-based Pew Hispanic Center.

Yet First Data faces increasingly intense competition from banks and other players for the $4 billion in annual fees that the Inter-American Development Bank says consumers pay to send money to Mexico and Central America.

Citigroup and Bank of America have taken advantage of acquisitions of Mexican banks to roll out new money transfer services. Citigroup in April introduced a $5 flat fee for instant transfers.

"The banks pose a significant and meaningful threat to Western Union," said Mark Stickle, who helps manage $60 billion, including First Data shares and bank stocks, at Banc One Investment Advisors in Columbus, Ohio. "Citigroup has all the pieces in place to compete and Bank of America and Wells have most of them."

Banks are trying to win over customers with lower fees, according to the Bloomberg report.

Bank of America in March bought a 24.9 percent stake in Grupo Financiero Santander Serfin, Mexico's third-largest bank, and made money transfer withdrawals free at Santander Serfin's 1,770 ATMs in Mexico. The bank in June increased the amount of money customers could send to Mexico to $1,500 from $1,000 for a $10 fee and allowed as much as $3,000 to be sent in a month. (See related story BofA offers surcharge-free ATMs in Mexico)

In April, Citigroup started a transfer service targeted toward Mexicans living in the U.S. that costs $5 regardless of the amount sent. It allows customers with a U.S. Citigroup account to send money using an ATM or the bank's Web site to an account at Grupo Financiero Banamex-Accival SA, which Citigroup bought in 2001. (See related story Citigroup makes major Mexican play)

Banamex, Mexico's No. 2 bank, allows the transfers to be collected at its 1,400 branches or 4,400 ATMs in Mexico. By the end of the year individuals without a Banamex account will be able to pick up the transfers in cash.

First Data, which traditionally has faced its biggest competition from Viad Corp.'s MoneyGram Payment Systems, has more than 6,000 outlets in Mexico, a bigger network than any of its rivals in the transfer business, and doesn't require its customers to have a bank account or checking account to make transfers.

That will make it difficult for competitors, especially banks, to win market share from Western Union, said Gwenn Bezard, a senior banking analyst at Celent Communications.

"Banks are still building their expertise in this business," Bezard said, noting that it will be a challenge to attract immigrants who do not have bank accounts and may be distrustful of banks.