Western Union takes MFI route for rural spread

Money transfer company Western Union believes in tapping fortune at the bottom of the pyramid.

The company is tying up with microfinance institutions (MFIs) and e-governance service providers to facilitate financial inclusion.

This marks a shift in its India game plan, to offer money transfer services through MFIs besides its current portfolio of India Post network, banks, retail and finance agents.

The Nasdaq-listed company has tied up with e-governance and IT solutions provider CMS Computers, which has government’s mandate to roll out more than 17,000 e-governance locations across India.

“We are looking at multiple classes of trade to catapult growth. Synergies with MFIs and e-governance providers will transform financial service offerings in rural India,” said Kiran Shetty, regional vice-president (India), Western Union.

The company is present in India through ten principal agents who in turn appoint sub-agents. CMS is the sub-agent to Paul Merchants Ltd, the flagship company of the Paul Group of Companies. Last year, overseas remittances into India touched $50 billion. By 2009-end, the number would reach $52 billion, according to World Bank estimates. The rally is fuelled by remittances into rural areas in Punjab, UP, Kerala, Rajasthan, Maharasthra, Andhra Pradesh, UP, Tamil Nadu and Karnataka, which contribute 60% to Western Union’s business.

The average ticket size of the transaction ranges between Rs 25,000-30,000. Western Union has 6.6 million customers in India.

During the second quarter of 2009, revenue growth from India slowed to 11% from 19% in the first quarter. The transaction growth also dipped to 27% in the second quarter compared from 42% previously. The depressed economic condition coupled with job losses have contributed to the drop. The World Bank expects 7% drop in global remittances this year from $398 billion in 2008.

However, Shetty feels that a regulatory cap of $2,500 per remittance in India doesn’t put them at a disadvantage compared to other banks.

“If you look at the reach, we are already present in 54,000 locations compared to 65,000 bank branches across India. With microfinance institutions in the loop, we will definitely have a larger presence,” he said.

The company has quashed rumours of taking the non-banking financial company (NBFC) route in India. Western Union is sitting on a cash pile of $1.3 billion and enjoys a 17% market share.