Remittances to and from Mexico Represent Clear OpportunityBy Peter Appleby | Wed, 09/23/2020 - 10:56
Q: How does Western Union differentiate itself against a growing number of alternative digital transfer companies?
A: Western Union is certainly facing more competition but we are a forward-thinking company that began pursuing its digital transformation around five to 10 years ago. This strategy has clearly paid off when we take into consideration that almost 30 percent of the total funds we pay out in Mexico, which usually originate in the US, are through digital channels. This has put Western Union in a very strong position today, which is particularly true when thinking about the pandemic the world is facing.
But what sets us apart is heavily linked to the way that we saw the market developing. Consumers have multiple transaction options, so we also optimized our internal processes through a clever but straightforward implementation of technology that cuts inefficiencies. Our first focus is always our customers. They are always at the center of Western Union’s thoughts and this is what keeps us ahead of the competition.
Q: What trends is Wester Union seeing in remittances with the arrival of COVID-19?
A: Mexico is the third-largest market for cross-border person-to-person finances worldwide, behind corridors in India and China. Last year, Mexico’s remittances inflow was around US$36 billion. From this amount, US$28 billion came from the US. The importance of remittances to Mexico’s economic aggregates is very clear. Though Mexico ranks third globally in terms of inflow, the outflow of remittances from the US into Mexico is the single-largest cash corridor globally. Remittances are more important for Mexico than the entire tourism industry.
What we are seeing now is a situation that initially surprised analysts. Migrants in the US are still supporting their families in Mexico and other regions, with Central American nations receiving large inflows of remittances. However, Mexico has led in growth during 2020. Western Union is monitoring this growth because we understand that the health of the Mexican industry is tightly connected to the performance of the US labor market.
Q: How would Western Union adapt should remittances begin to fall owing to the pandemic?
A: Remittances have effectively proved to be recession proof. But this is an unprecedented financial and economic crisis, so Western Union must follow it very closely. The return of economic performance and spending levels cannot be anticipated at present.
We have always been responsible in the way we undertake investments or projects and we have carefully managed our bottom line. We are now taking a look at the top line to gauge the level of activity and how revenue will be impacted. Economic performance obviously has a direct connection with the size of the company, staff headcount and our ability to invest in new projects.
Our quarterly earnings reports demonstrate our robust and healthy financial position, which will help us face challenging times like the pandemic. Of course, the inflow of cash into Mexico is the most easily viewed of our market activities because it is a huge amount, but we must also manage the outflow from Mexico. This means there are more opportunities for us and we are trying to capture them.
Q: How does Western Union see its unique role in Mexico regarding remittances and financial inclusion?
A: Western Union has operated for over 160 years and has a strong commitment to financial inclusion. Part of that is access to retail locations. We operate almost 40,000 retail locations across the country, not only in cities. We reach rural areas in various ways, including through our long-standing partners like Elektra, Bancoppel and Telecomm. We are present at the country’s main retailers, including Walmart, Chedraui, Soriana and many regional chains. We also have a partnership with OXXO, which helps extend our footprint. This extensive coverage reflects our commitment to better serve our consumers exactly where we are needed. In certain parts of the country, Western Union’s retail locations operated by our partners may be the only places where people can get cash.
On top of that, we are committed to supporting people at the base of the pyramid regarding access to other financial solutions. This is why we constantly attempt to advance our ability to deliver cash to consumers in a variety of ways and we are closely monitoring the fintech revolution taking place in Mexico. We are operating with several partners to facilitate access to those in the 30 to 35 percent of the population who have little or no access to financial services.
Financial inclusion is not only a goal in Mexico but in all countries where we are present. Western Union began with the intention to connect people around the world and we want to continue this tradition.
Q: What level of penetration has the Western Union app has achieved in Mexico?
A: Remittances arriving into the country are huge but according to Banxico, around US$1 billion in remittances were sent out of Mexico to other countries, regionally and even to China, which is a large recipient of remittances from Mexico.
Remittances is a growing market and this is exactly the segment where we believe our digital asset, the Western Union app, has a superb opportunity. The app offers a strong value proposition in terms of convenience. We are working with regulators to launch a non-face-to-face KYC (Know Your Customer) that will allow us to enroll customers remotely, which will enhance the convenience factor further.
Pricing is very competitive vis-à-vis other banking solutions in the market and in minutes we offer our clients access to over 550,000 retail locations worldwide in over 200 countries and 4.5 billion bank accounts globally. Our platform offers connection to retail locations and bank accounts or a store value solution like an e-wallet.
The digital transformation that we are still undergoing is helping us deliver more consumer solutions that help us to put the consumer at the center of our efforts and give them more options.
Q: How important is Mexico to Western Union’s global portfolio?
A: Mexico is within the Top 5 markets for the company worldwide. Mexico is only behind India and China in terms of market size and this is mainly due to the population sizes of those two countries. Remittances help maintain consumption levels in Mexico but the US$36 billion that entered Mexico last year from the US is still only a small portion of the national GDP. This is positive because it reflects the powerhouse that the Mexican economy has become. Remittances account for less than 3 percent of the Mexican GDP, whereas in other regional nations like El Salvador or Honduras, that percentage is between 15 and 20 percent of GDP.
Western Union offers worldwide financial services for person-to-person transactions across borders. Founded in the US in 1851, the company now has 500,000 locations in over 200 countries around the globe.