Western Union: Why we aren’t doing cryptocurrency
There are good business reasons to turn down crypto and start with other blockchain solutions first.
With the big banks and services like MoneyGram loudly trialling Ripple payments, a lot of speculators are wondering when, whether and how Western Union, perhaps the world's best known money transfer service, might be planning to get involved in cryptocurrency.
finder.com talked cryptocurrency with Simon Millard, Western Union's country director in Australia, to find out.
The short answer is
- No to cryptocurrency, pending further developments.
- Yes to blockchain if it's useful and able to help Western Union better serve its customers.
- Keeping a close eye on the developing industry and staying "on the inside track" to make sure it's on top of the new technology and its potential.
“Our position is to be on the inside track... [but] we're not going to get sidetracked."
Western Union's foray into cryptocurrency began with a $50 million investment in the Digital Currency Group (DCG) to examine the potential of the technology and to keep Western Union at the front of developments. The verdict might be that it has a lot of potential, but it's not there yet.
"Western Union has no view to accepting crypto any time soon," Millard said. "Our position is to be on the inside track. We'll stay close to it and monitor it... [but] we're not going to get sidetracked. We're looking to serve consumers better today."
It might seem like an unconventionally lethargic approach in a world where insiders are making bullish predictions for cryptocurrency payment systems and describing the current international money transfer network as "unacceptable," but as Millard made clear, Western Union's decision is a conscious and educated one, reached only after significant investment, investigation and consideration.
The three obstacles to cryptocurrency
Millard highlighted three specific obstacles that informed Western Union's decision to sidestep deeper involvement in cryptocurrency for now.
Western Union (WU) spends over $200 million per year on compliance, according to Millard. This is perhaps a natural side effect of its broad scope. The company offers money transfers to over 200 countries and territories, and operates across 550,000 agent locations, plus over 100,000 ATMs and kiosks around the world.
But cryptocurrencies overall are still largely outside the scope of existing regulation in most countries and money transfers are a particularly fraught area.
For example, South Korea might be one of the world's most enthusiastic early adopters. It's laying down cryptocurrency regulations more quickly than most but using cryptocurrency for international transfers or forex purposes can still put you on the wrong side of the law.
Plus international transfers will naturally involve at least two countries. WU's current 200+ country scope means millions of potential regulatory combinations and a lot of new ground to cover. Most of which is still a very dangerous grey area.
How do you legally transfer "money" when it's a commodity on the sender's side and a security at the receiver's end, and how should accountants account for this? Will accepting cryptocurrency affect your advertising plans? Does Brexit mean you'll have to update the rules before they're even written? How much will you be spending per year on new know-your-customer (KYC) procedures? Don't forget to change your payment methods. You might have to ban credit cards in some countries and cash in others. Can you account for the costs of that?
These are the kinds of questions that will cost a lot more than $200 million per year to answer, and the benefits of actually bothering are still dubious.
Trust and security
"Trust, security and credibility are critical," Millard says. And in the popular consciousness, cryptocurrency is probably still lacking all three. Every day brings a new scam or three, and there's a certain merit to the argument that bitcoin, Litecoin, Nano and any other store of value coin (including fiat) is simply a kind of legitimised Ponzi scheme.
It's also important to put the actual size of the cryptocurrency market in perspective. The total value of all outstanding bitcoin as of 5 February was about $130 billion. But despite its media prominence, bitcoin's market cap is currently smaller than many large businesses' stock market caps.
And if you're talking about international money transfers, you also need to consider cryptocurrency and general digital payment adoption on a global scale rather than a local one.
"Australia has the highest digital penetration globally," Millard points out. But this local experience might not be too relevant on the global scale. "Ten years ago, cash was used for 86% of transactions. Today it's 83%. We believe traditional payments still have a long way to go [before being obsolete]."
For a global transfer service, the commercial benefits of allowing consumer cryptocurrency transfers might be negligible, while the general perception of cryptocurrencies means it risks doing more harm than good. For an institution like WU, which has been transferring money since 1871 and deliberately working towards a brand reputation of trust, reliably and credibility, this might be a particular risk.
It also risks stepping on its own toes to a certain extent. WU launched online payments in the now-ancient year of 2000, mobile app payments in the year 2007 ("app based transfers make up the majority of payments") and social media money transfers in 2015. WU competitor MoneyGram didn't get to this last one until 2017.
"We are fintech." Millar said. "There’s a lot of digital innovation going on beyond crypto... Ultimately moving money is what we do. Western Union is focused on digital solutions that customers want and will use."
The company's reputation as an established heavyweight doesn't hold back newer developments. On the contrary, its brand recognition and trusted reputation might let WU get into new areas like online payments, apps and social media transfers sooner than its competitors and establish legitimacy where it didn't exist previously.
There's naturally no comparison between the innovation of cryptocurrency and the ability to make payments via Facebook Messenger, but there's also no comparison between their prevalence. By the numbers, cryptocurrency is still in its infancy. There's no need to jump the gun if it risks one's brand reputation – especially if that reputation can help one become an early adopter down the line.
Millard also cited this as a slightly off-putting factor.
What about blockchain technology and other developments?
Western Union invested $50 million on a digital currency inside track. And while Western Union has no hard plans to implement blockchain solutions yet, or none that aren't confidential at least, Millard said the company is open to the potential of the technology and how it can benefit both Western Union and its customers.
"If it can bring benefits, then it would make sense."
The benefits of distributed ledger technology can touch almost any industry, as the USA CFTC chairman recently noted, and at this stage seem likely to precede the widespread acceptance of cryptocurrencies as actual fiat currency equivalents.
In particular, the advantages of blockchain technology might help companies like Western Union make the push towards cryptocurrency when the time comes.
Many coins are aiming to become this intermediary layer. For example, Request Network (REQ) aims to create an automated accounting layer that can work on top of fiat currencies or blockchains to take care of needs like tax withholding, interest payments, fees and exchange rates. Others like Factom (FCT) are focused on creating a complete auditable paper trail for all kinds of transactions, while coins like Civic (CVC) aim to be the one-stop solution for all ID verification and personal information storage.
In the quickly developing world of cryptocurrency and distributed ledger technology, these types of functions might take their place as industry standards.
A lot of cryptocurrencies are being created to facilitate distributed ledger payments, and adoption will probably get a lot easier once they're up and running. In some ways, the more direct solutions like Ripple XRP aren't the most practical.
"We don’t know what the future holds, but it’s exciting." Millard said. "Crypto may well shape the future, and if it does we’ll be a part of it."
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Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM