Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

The Strange Relationship between Apple Pay and Western Union

Oddly enough, Apple Pay is having one of its biggest successes with one of America’s oldest money transfer solutions; The Western Union (NYSE: WU). Around 29% of Apple Pay users also use Western Union wire transfers or money orders, research from the Mercator Advisory Group indicates.

That’s a far higher rate Apple Pay adoption than among the general public, Payments Source reported. Only around 13% of iPhone users have tried the digital wallet and just one third of US merchants accept it.

What is going on here, why do the same people that use old-fashioned solutions like money orders also take advantage of new-fangled digital wallets? My guess is that Western Union customers tend to be unbanked or underbanked, that means they lack access to resources like credit cards and checking accounts.

This means they are less invested in the banking system and more likely to seek alternatives. I also imagine that a high percentage of them distrust and dislike the banking system often from personal experience. A person without credit cards or a debit cards is more likely to reach for something like a digital wallet.

Western Union’s Unexpected Digital Success

Another reason for the adoption is that younger people and recent immigrants who regularly receive and send cash via remittances are more likely to use Apple Pay. Such people might not have a local bank account yet they still need cash and to pay bills.

Western Union is now accepting Apple Pay at its U.S. locations. Its mobile and business is growing dramatically transaction volume at Western Union’s web site increased by 28% between third and fourth quarter 2016, and consumer to consumer revenue increased by 27% on the site at the same time, Payments Source reported.

The growth is driven by millennials who are more likely to use digital payment solutions such as Venmo and less likely to have traditional bank accounts or credit cards. These people can get through their days with electronic solutions and cash but still need to receive funds from home and send the occasional money order.

Not surprisingly, Western Union is working to support Apple Pay at its locations in the United Kingdom. The company is also moving to adopt other digital wallets including Android Pay and Samsung Pay.

Apple Pay Success at Western Union Explains Ant’s bid for MoneyGram

Apple Pay’s success at Western Union explains why Ant Financial tried to acquire WU’s biggest competitor MoneyGram International (NASDAQ: MGI) earlier this year.

The privately held Ant owns the world’s most successful digital wallet China’s Alipay, but it has yet to penetrate the American and European markets. Controlling MoneyGram would have given Ant a network of locations from which it could have introduced Alipay to the United Kingdom and United States.

One key market would have for remittance by immigrants sending money home to the folks in Alipay markets like China and India. Another use would have been to introduce Ant products to working class Americans many of who are unbanked or underbanked through MoneyGram locations.

Apple Pay is a Serious FinTech Player

It looks as if Apple (NASDAQ: AAPL) is a serious player in fintech and payments despite the limited market penetration of Apple Pay. The app is succeeding with growing niche markets, even as it is spurned by the public.

If Apple can keep marketing to nontraditional markets like Western Union users and millennials it might be able to create a sizable payments ecosystem. That system would be highly lucrative if Apple could tap the vast remittance market. The World Bank estimated the amount of remittances sent from developed to developing countries in 2015 at $431.6 billion; Western Union is a major player in that business.

It is not clear how much of the Apple Pay business at Western Union consists of remittances; but the portion might be sizeable which would be profitable for both companies. Remittances are growing fast, the volume of transfers doubled in the past 15 years, according to the World Bank.

Long term success is not guaranteed here because of the growth of bitcoin and other cryptocurrencies. An obvious next step for both Apple and Western Union would be to start supporting bitcoin and ethereum. That would enable the system to grow fast through technology like Lightning, and offer the potential of instant app based remittance payments.

Apple Pay’s future is brighter than we think. It’s just not going to enjoy the mainstream acceptance than the iPhone and some of the other products have experienced.

Expect Apple Pay to become a major player in the remittance game and to gain wider experience through that channel. Alphabet (NASDAQ: GOOG); which owns Android Pay, and Samsung creator of Samsung Pay will surely follow. Therefore digital payment apps might be the key to Western Union’s survival and future success.

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