Here’s Why Western Union is in Serious Trouble

Like many who follow cryptocurrency closely I’ve had my eye on the ongoing Money2020 conference taking place in Las Vegas, NV. One of the specific interviews that has surfaced and caused a stir is the Erik Schatzker (Bloomberg) interview with Western Union CEO Hikmet Ersek. It can be viewed here.

In this interview, Ersek struggles to describe how bitcoin will impact Western Unions legacy money transfer business. Some excerpts:

ES (Bloomberg): “Is the bricks and mortar network a melting ice-cube?”

HE (Western Union): “It’s not. If you’re a Philippino nurse leaving your country from the Philippines and coming to the US, serving US society in a hospital … Half of your salary is sent back home and you want to give the money to somebody you trust. You trust somebody, you go to a location, it’s a big event.”

ES (Bloomberg): “What about bitcoin?”

HE (Western Union): “Well, I think bitcoin is a good system. I always say – what is bitcoin? Is is a currency or a system? I’ve been asked, would you transfer bitcoin? Bitcoin is not a regulated currency. In the moment that it is regulated, any currency, as we do transfer 122 currencies, we would transfer any currency worldwide. Once it is regulated – it has to be regulated!”

ES (Bloomberg): “But once it’s regulated does it then become a legitimate competitor to what you do at Western Union?”

HE (Western Union): “Definitely not…. …Erik, you want to send me one bitcoin, lets say. I get it in Dirhams, right? What is in the middle is Western Union.”

First it appears clear that english is not Ersek’s primary language (he’s originally from Istanbul) and with that I feel the need to grant some leniency in this regard – clearly describing complex ideas under a camera lens on live television is hard enough. That said, he is the CEO of a multi-billion dollar international company and there are some telling responses that do not bode well for Western Union. Here are some specifics:

  • It is ironic that Ersek specifies “trust” as an important factor in transferring money. He’s 100% correct, it certainly is a key element. That being said, what he fails to appreciate is that crypto currencies are peer-to-peer and require no middleman for international transfer. Trust not required. That said, users will still likely have to trust a 3rd party if they want to transfer into local currency. It is clear that should they do so they would choose to go through an exchange (most charge 0.4% or lower for withdrawals into local currency). This beats the Western Union average of 10.8% by 10.4%. Yikes.
  • Next, Ersek specifies that the only requirement for Western Union to accept bitcoin is that it be regulated. This implies that once it is regulated Western Union will add it to their offerings. To anyone that understands how bitcoin works this response is very confusing. The obvious threat is that of the 122 currencies Western Union currently serves all that is required is the emergence of liquidity (likely in the form of native bitcoin exchanges) for each of those customer bases to disappear seemingly overnight. (I will describe the likely scenario for this below).
  • Finally, when pushed to describe if bitcoin is a competitor, Ersek completely misses the mark in not acknowledging, or possibly even recognizing, that bitcoin is the proverbial comet that is about to disrupt his business. In his example, he describes Western Union as the middle man for transferring Bitcoin to Dirhams. If this is the case, they better hurry up and make some offers to crypto-exchanges.

There are only two things required to dissolve Western Union’s business worldwide. The scenario for each region will require the following:

  1. Liquidity: Currently bitcoin is not truly “international” in the sense that many countries do not have native exchanges. Of the 122 currencies mentioned by Ersek established bitcoin exchanges likely only operate in 10-20 of them. What this means is, unless users are willing to hold bitcoin, there is no way to “cash out” and use that value at home. That said, countless exchanges are in the works and fighting to bring this liquidity to their countries – much faster than many might suspect. Furthermore, the big fish like Coinbase and Circle will continue to expand their reach. Once they do anyone in the world will be able to send value at almost zero cost and cash out in their native currency.
  2. Awareness: Once liquidity has been established the only remaining requirement is for entrepreneurial individuals in these markets to setup a lawn chair across from a brick and mortar money transmitter terminal, cash and cellphone in hand, and undercut the rate. Boom! Instant entrepreneur. In fact, it would be silly for the employees of these terminals to not take the business for themselves, one might imagine they likely would.

As someone that has travelled extensively in the developing world, I can say that it will take little time for individuals in liquid markets to exploit this opportunity. Last October 2013, while traveling in Buenos Aires, Argentina I saw first hand the industriousness of local individuals in acquiring US dollars. On the streets the price for USD was double that of local exchanges. You should expect the other parts of the world to be no different, when there is a margin to be made the gap closes pretty quickly. At 10%, the gap in remittances is significant incentive.

With this understanding, I must admit I was very surprised to hear the CEO of the world remittance leader speaking so casually about bitcoin technology. If his statements truly reflect the awareness and strategy of his company they are in for a world of hurt.

UPDATE: Within minutes of making this post I’ve received some criticism for the title, particularly the inclusion of “serious trouble”. By “serious trouble” I do not mean that the organization is on the verge of collapse or immenently doomed. What I do mean, and stand by, is that evidence would suggest that their leadership is unaware of a technology that has arisen that is in direct competition with them and could likely disrupt the core of their business. If the CEO of Kodak had displayed an equal disregard for digital cameras in 2002 I would have felt the very same way. It is the job of leaders to be aware of the ocean in which they are navigating their ship, in this case the captain seems relatively unaware of the choppy seas.