MMT Explained, part 11: Matt Dill of Western Union Digital Ventures defines a new generation of 'digital agents' and identifies the new transactions and new customers of MMT

Western Union is a leading global money transfer company. Last year the company moved $67 billion through its systems. Western Union focuses on moving value primarily from developed countries into developing countries, and the Western Union brand enjoys over 90% brand recognition globally among the world's migrants. Other key assets are their central global system for processing transactions and a global agent network for cash in and cash out, consisting of 379,000 locations in 200 countries - that's five times the total worldwide locations of McDonald's, Starbucks, Citibank and Wal-Mart combined.

Western Union entered the mobile money transfer space in Q2 2008 under the guidance of Matt Dill, Senior Vice President and Head of Western Union Digital Ventures. Matt was kind enough to talk to us, and our 1,200+ MMT Group members, about what he and the company have learned to date.

Within our MMT Group and MMT Conferences, in the last 6 months we've noticed a lot more major brands putting out RFPs and making major investments into MMT - have you seen a similar pickup in the market at Western Union?

People were a little cautious earlier in the year, but now they're more willing to pull the trigger on mobile money initiatives. Let's put it this way: if MMT is a gold rush, then there are a lot of people trying to produce wagon wheels!

Thanks for taking this interview Matt - first of all, please could you introduce us to Western Union Digital and to your role within Western Union's MMT initiatives.

I lead the Digital Ventures group, and we are interested in evolving what the definition of an agent is for Western Union. In the past our agents have typically been banks, post offices, grocery stores, and corner merchants. In the future we see no reason why we shouldn't have online partners, mobile partners and partners for any channel to be defined in the future. My group's objective is to create digital agent or digital partner structures that extend Western Union's real-world model to new channels.

In terms of the current status of that evolution of a digital agent, Western Union is already well under way with pilots from the UK, Hawaii, the UAE, Hong Kong and Singapore to Globe and SMART in the Philippines, what has been customers' response to Western Union Mobile?

When we began our mobile initiative, we decided that it was critical for us to understand the roles represented by different players in the overall value chain. We identified major moves by large global brands such as Orange, Vodafone, Orascom, Telefonica et cetera, who were interested in getting into mobile money as a category. We also identified regional hotspots occupied by smaller mobile operators -- those that may not have as many territories in which they were involved, but who were first movers in developing a deep understanding of what mobile money is or could be. I'm talking about pioneers such as Safaricom, Globe, SMART and MTN.

At Western Union, we have partnered with large organizations who have the ability to scale these initiatives over time, but we also partner with smaller organisations - those I referred to as mobile finance hotspots - companies who have been able to demonstrate, interact with, and learn from the population today.

Our early pilots established Western Union's role as one of moving money from developed markets into developing markets, initially into our partnerships with Globe and SMART who we think have been leaders in this space for many years. So now an individual can put cash down on the counter at select US agent networks, UK, UAE, Hong Kong and Singapore, and that money can appear as value in a Globe or SMART account.

So your first pilots were cash to mobile. Do you view these early pilots as successful?

Our aim for 2008 was proving whether we could get this to work - can we move this new transaction through our global network, and can we make it available to consumers at our point of sale outside of the Philippines? And on those two specific fronts, we have been successful.

Our focus in 2009 is to learn what drives consumer participation in cross-border remittances in the new business models of cash-to-mobile, mobile-to-mobile, and mobile-to-cash. We have some interesting insights on that. In terms of adoption, mobile is not a material proportion of our business to date - we see it as interesting, we see it as incremental, and we see it as having very solid potential for the future, but it is not a type of a transaction that you turn on and suddenly you've transformed what Western Union is or what money transfer means.

We also see that consumers are somewhat cautious about this new channel. When it comes to cross-border transactions, consumers need to understand how it works, what the benefits are, and what types of transactions are most suited for delivery to a mobile account, versus a cash pay out.

Would that be reflected in the experiences you've had at those pilot locations; for example, does the customer need a lot of education the first time they try it?

Absolutely. Here's a specific example; let's assume that you are a Filipino migrant in the UAE, and that for the last 18 months you have been sending money home to your family, either via a cash-based money transfer organisation such as Western Union or via a bank. All of a sudden a new service is made available for you to send money to the mobile phone of your beneficiary in the Philippines. As a working person who currently needs to take a portion of their day to physically go and make those transfers, the question you grapple with is: "At what time is this new alternative mobile option right for me?" We're not exactly sure what that trigger point will be that gets people to move from the physical channel to the mobile channel - what we see when we move beyond the domestic offering is a very education-heavy consumer proposition. You really have to explain to the sender how this service works, the safety and security, the role each of the brands play in the transaction - all of these items are necessary to change consumer behavior.  And let's not forget, for them to use this new model there needs to be a clear benefit for the consumer as well.

The dominant reason someone would use a cash-to-mobile money transfer is the convenience it offers to the recipient. The main driver is not fees charged to the sender, it's not proximity to a location, or ease of use to the sender - it comes down to what we would call a receiver-driven decision criteria. That constitutes a transformation in the way that money transfer has been looked at by many companies in the past -- they've often focused on sender-centric value propositions. For cash-to-mobile transactions, receiver preference is the key driver in a mobile money transfer context.

Does that switch to receiver preference as the key driver in MMT promote the mobile network of the receiver as a particularly important stakeholder?

We see a transformation opportunity. The key point for the companies that would like to play in the cross-border MMT space is to recognise that you have to balance the needs of the sender and the receiver - only when you've done that effectively will you achieve the ability to grow in that marketplace. And if you've done it once, you've still got to scale from one small corridor to 10, 20, 100 or 200. Western Union manages 15,000+ unique corridors today.

Matt, let me take you back to what you described as the "education-heavy consumer proposition." Within the relatively controlled environment of your pilot locations, that may be manageable, but in the context of Western Union's impressive agent network of 379,000 locations worldwide, what challenges does that "education-heavy consumer proposition" pose should mobile take off as a channel and need to be represented across an increasing number of those locations - how are you going to manage a consistent, high-quality customer experience?

I suppose what you're asking is, at what point can you normalize MMT in the agent network? We need to ask ourselves: "When is this a product or service that can be made available to a material portion of either the existing money transfer and remittance community, or to a new segment of consumers?" We are a little bit early in the process to say that we are right on the cusp of normalization. What we can say is that by participating in these markets early on, while they are nascent, we hope to establish the simplest process for sending money between channels. We're confident that we will uncover the best way to normalize MMT processes, and we'll ultimately be able to move that out into our network. To say that we know how to do that today would be premature, but we are actively working on it and experimenting with different models, and we're comfortable with where we are given the state of the market.

That seems to be consistent with the experiences reported by a lot of MMT Group members and speakers at our conferences - it's the development of a package of agent training materials that work, and ultimately delivering a consistent experience with the service across a variety of locations - that's what will drive MMT to critical mass.

I'd like to give you an example of why participating early in a market is helpful. We learned that consumers in the send market required a great deal of education about what a mobile wallet is - the further you travel out in the migrant diaspora, the less the consumers know about the mobile money services Globe and SMART are offering back home. So we simplified how we present the service in locations while expanding our product capabilities to experiment with a new transaction type called a 'Western Union Mobile Pick Up.' Now, rather than go to each of our 379,000 locations around the world and try to tell senders what a mobile wallet is, we are instead working with our partners' customers in the Philippines, who already know what a mobile wallet is, and giving them the ability to 'Pick Up Western Union' on their phones. The benefit of this model is that we don't have to change any of our network around the world. The sender sends Western Union as they normally do, and the receiver picks up money over their preferred channel: they can pick up cash in person at a Western Union agent, or they can pick it up electronically using their mobile phone.

That's the type of product evolution that participating in a market early helps you find: we may not need to do anything to our agent network - we might just have a transaction that we make available to mobile partners that's 'Send Western Union,' and another product that is 'Pick Up Western Union,' and the channel used is up to the customer.

...And that supports what you were saying earlier that recipient convenience is currently the dominant driver for MMT - so you've developed a product that meets that demand.

Yes - so that's a good example of how I think normalization is not necessarily about force-feeding your existing asset into a new channel; it may be about developing a knowledge-base regarding user behavior in a new channel, and then adjusting the product proposition appropriately. We're presently running trials in both directions to see which one works best, and we will normalize using the winner of our internal 'bake off.'

We see a lot of domestic MMT services being launched, and the operators of those services are saying the cross-border international remittances will come in phase two, but it's complicated. So as the world leader in international remittances, could you sum up the practical challenges of compliance and processing cross-border settlements?

Moving money from one jurisdiction to another, for example from the UK to Kenya, is not particularly difficult. You can comply with the requirements of the Financial Services Authority and other regulators in the UK, you can comply with the Central Bank of Kenya (CBK), and it is possible to create a legal transaction. We're not in the business of attempting to make that look more difficult than it is.

What we do want to convey as Western Union's value proposition, is that if you are truly interested serving the full diaspora that a migrant community may immigrate to, which could range from maybe 5 to 30 markets, then we think you should have a solution that is simple, easily understood, and compliant with all of those markets. With a partner like Western Union you can interact effectively with your regulators, your domestic agents, and you can efficiently meet the needs of your customers.

When you consider not just the technical transaction, but the operational and regulatory responsibilities mobile money provider has to its third party stakeholders, that's when you begin the understand the consumer benefits, global scale, experience and operational capability of Western Union.

As you know Matt, very few MMT services to date have commercially launched an international remittance service - could one of these operators pick up the phone to Western Union now with a view to adding that capability? And what does that tell us about the readiness of the MMT market in general to start offering cross-border remittances?

Yes, an MMT operator can begin to work Western Union and plug into a global network. That is the purpose of Western Union Digital Ventures, and that is why we have been actively engaging with the mobile network operator community over the last year and a half.

We provide a deployment process, which begins with education on the responsibilities that a domestic service provider would have to meet to participate in international remittances. There are technical, operational, and compliance responsibilities they must meet on a local level in order to evolve ultimately into a viable destination or origination point for international remittances through Western Union's network.

So there's a project plan for potential partners to become one of those 'digital agents' to which you alluded earlier?

Exactly. We look at technical and operational integration as a connectivity exercise. We share our API for submitting or receiving transactions through Western Union's hub, and we also share the operational relationship we require to manage behind-the-scenes settlement - moving of actual funds - or the customer support procedures that are required to allow a customer to investigate the status of their transaction or to solve problems. This is important when you're moving funds between multiple parties.

Finally, we assist with a commercial launch strategy - how services should be brought to market and introduced to consumers. This includes the marketing (the consumer education requirements) and the messaging that goes into introducing an international remittance product to a domestic community or to a migrant population that is spread out across the world.

This deployment plan - physical processes, procedures and documents - has been implemented today, and we share that with our existing partner base, which includes some whom we've announced publicly, and some we have not yet.

In Western Union's recent Q1 2009 earnings call, CEO Christina Gold commented "we feel that mobile could be the entree into us for intra in either China or India." Could you comment on why mobile might be a particularly strong channel for money transfer within those countries?

When you look at highly populous countries that have a strong intra-migration experience - meaning people are moving from rural to urban areas - one of the challenges in introducing new services is developing agent density and establishing capital requirements in your agent network. We think that the success of the early mobile money initiatives in smaller markets might be transferable to larger markets with large-scale internal migration trends.

We believe this opportunity is available both to Western Union and other players in the value chain. As a leading player in the remittance space, we have the opportunity to develop service propositions in major markets - markets that may be difficult, expensive and slow to develop -- in a way that smaller companies or startups might not have the scale or sustainability to bring to fruition.

Christina also made references to pan-African strategies as being "cross-border, but they're really almost like intra taking continents and working them through." Can you comment on the key differences between operating domestic and cross-border MMT, and can you comment on Western Union's mobile strategies and partnerships in Africa, where we'll be holding our next MMT Conference on 5 & 6 May?

I'm going to come back to this point about balancing the needs of senders and receivers when it comes to cross-border transactions. You could confidently say that there are more pan-African MMT initiatives than there are in any other region of the world today.

What you have is an environment where there will soon be many competitive offerings from mobile operators or banks or cash-based remittance providers, and the net effect on the population will be that they will understand the mobile channel perhaps even better than customers in Europe or North America.

So Africa demands a unique perspective and approach - we have an opportunity as a business to create a strategy for growth that takes into account the real-world experience of that population. In Africa, we believe that with Western Union's agent network and presence in each of the countries, we can be more aggressive in introducing agent-to-mobile, mobile-to-agent, and mobile-to-mobile cross border transactions. We can make a concerted effort to introduce mobile services as a core component of our product and brand in a way that we might not do on a global basis.

What Christina was alluding to was that using regional strategies we may begin the normalization process we discussed earlier in a staggered fashion. Western Union may introduce initiatives - those that we ultimately may hope to roll out on a global basis - first in a pan-African strategy.

Finally, both Christina and yourself on a couple of occasions today alluded to the view that MMT will not cannibalize your existing money transfer business, in that it's a different transaction and different consumer. Could you elaborate a little on what you feel are the key differences between mobile and face-to-face money transfer customers?

The most successful mobile money initiatives tend to be domestic money transfer. Western Union is primarily an international cross-border remittance provider. So we think the clear behavioral difference we're seeing in the MMT category is that it is a high-touch, low value, high-frequency transaction done primarily on a domestic basis. When you look at those attributes next to Western Union's core service, which is low-touch, high-value, lower-frequency transactions, we see a new and different opportunity - how the principal values align, how the fee structures align, and how consumers use it.

So do you see MMT as "different transactions, different customers" or "different transactions, same customers?"

It's both. To assume that there are customers who will only use cash or only use mobile is probably naïve. Consumers are relatively comfortable using the most efficient channel to meet their pressing needs and objectives. To take an example outside the mobile money space, people are quite comfortable buying books online, but they still drive to the store to buy milk.

Western Union is not in the business of defending channels. We are committed to serving our customers, and we will evolve through channels as necessary to meet their needs - whatever they may be.