Make no mistake about it, things are heating up in the money transfer sector. After years of almost no innovation, two giants recently announced plans to get into the financial services game. Earlier this week, we heard news that Facebook will be resurrecting its payments ambitions with the launch of a money transfer service in Europe. Today, Walmart jumped on the bandwagon with the announcement of Walmart2Walmart, an in-store money transfer service set to debut on April 24th at the retailer’s more than 4,000 US locations.
So what gives? Why all the attention around money transfer?
The simple answer is money transfer is big business. Look no further than the $9 billion plus combined market caps of Western Union and MoneyGram – down 5 percent and 18 percent respectively on today’s news – to know why Walmart and Facebook want in on this action.
Western Union generated $5.5 billion in 2013 revenue. Combine that with MoneyGram’s nearly $1.5 billion in revenue during the same period and you’ve almost matched the $7.8 billion top line figure generated by Facebook’s advertising business. It will take a few more zeros added to those numbers to move the financial needle for Walmart, but direct money transfer income is just one benefit of hosting this service.
Just as importantly, offering money transfer services is another way for Walmart and Facebook to get users to walk through their physical and virtual doors, respectively. This is as much about revenue generation as it is about customer loyalty and engagement. The more time Facebook’s users spend on its site the more ads they can serve. Likewise, the more reasons customers have to walk into a Walmart, the more likely they are to buy other products.
Finally, not to be overlooked, is the power of the data generated by the money transfer space. Facebook’s entire business is based around knowing its users and their extended social graphs. More often than not, money transfers happen between friends and family. Mapping the endpoint of these transfers, not to mention the frequency, dollar amounts, and motivating factors, will give Facebook an even richer picture of its users that it can use to serve targeted ads or deliver other services.
While it’s easy to think of Walmart as an “atoms” rather than “bits” company, it’s among the most technologically sophisticated of all global retailers and knows more about its customers, their shopping habits, and their personal lives than most consumers realize. If Target knows when one of its customers is pregnant before even her family does, what kind of personal dossier do you think Walmart, at six-and-a-half-times Target’s size, keeps on its customers? Make no mistake, data scientists working deep within the bowels of Walmart are licking their chops at the prospect of getting access to more payments data.
So with those three reasons alone, it should come as no shock that Facebook and Walmart are throwing their hats into the proverbial money transfer ring. Don’t be surprised to see other non-financial institutions follow suit. If the recent rise in popularity of bitcoin has proven one thing, it’s that consumers are looking for better and easier ways to manage their finances outside the existing banking system.
While details on Facebook’s money transfer system remain thin, Walmart’s fees structure is laid out for all to see. It will cost consumers $4.50 to transfer sums under $50 – a rate of 9 percent at the lowest end – and $9.50 to transfer any sum between $50 and $900 – 1.05 to 19 percent. It’s not the highway robbery of the legacy services which can cost $50 or more to transfer a few hundred bucks, but it’s not exactly pennies either.
It seems like there’s still more room for these fees to fall, should a disruptor like Coinbase or Venmo decide to take on the category. Furthermore, Walmart doesn’t yet allow international transfers, and Facebook’s service has no US component, meaning that the remittance market, which represents an enormous portion of the money transfer sector, is not yet affected.
Given the financial opportunity at stake, expect the battle for money transfer dominance to turn into a long and ugly bloodbath. It won’t just be the old guard of Western Union and MoneyGram versus the new guard of Walmart and Facebook either. Traditional banking companies and alternative payment networks like PayNearMe, Dwolla, and others surely have an eye on this market.
The good news is that with more competition, prices are sure to come down and service is bound to improve, making this a win for consumers. The bad news, however, is that the new market entrants want more than your money transfer commissions. They want your data, your attention, and the rest of your shopping business. Buckle up, this contest is just getting started.
[Image via Propmoney]