Cas Western Union 1

Western UnionBattling for Leadership in Money Transfer Business

Case StudyReference: MKII-01-VI

This case was written by Eric IDO, Western Union Paris, and Jean Paul LEMAIRE and Nathalie PRIME, ESCP-EAP (European School of Management). It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from field research.

© Ido, Lemaire et Prime, ESCP-EAP 2006. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form of medium, whatsoever, without the permission of the copyright owner.________________________________________________________________________

Introduction

Everyday, people – mainly the migrants - meet the necessity to send money to someone living in specific place of the planet, either urgently or on a regular basis. The money is generally sent back home by the migrants to satisfy various needs including the following:

- Family support (daily life),- Back-to-school support,- Urgent necessity (health emergency, etc.),- Special events and Feasts (Marriage, Ramadan, Christmas, etc),- Investment in business, house, etc.

Actually, the benefits of remittances for some countries are highly significant either in quantitative or qualitative terms.

The following table shows the amounts of remittances received in selected countries (excluding Informal and Business-to-business), compared with the annual Gross Domestic Product (G.D.P.):

© Ido, Lemaire et Prime, ESCP-EAP, European School of Management. MKGI-01-VI

2000 2001 2002 2003 2003 Remittance asGlobal Remittances Inbound Inbound Inbound Inbound GDP % of 2003 GDP

($M) ($M) ($M) ($M) ($M)Lebanon 2,110 2,308 2,544 2,728 18,106 15.1%Jamaica 903 959 1,288 1,425 10,922 13.0%Haiti 780 790 866 909 12,487 7.3%El Salvador 1,751 1,910 2,052 2,154 31,778 6.8%Mali 440 466 494 524 10,577 5.0%Dominican Republic 1,689 1,808 1,963 2,062 54,749 3.8%Guatemala 1,701 1,826 1,950 2,106 57,963 3.6%Burkina Faso 448 476 505 534 15,019 3.6%Ecuador 1,317 1,414 1,432 1,540 46,796 3.3%Senegal 454 478 503 529 17,722 3.0%Morocco 2,161 3,261 2,877 3,614 128,927 2.8%Kenya 815 783 599 749 33,933 2.2%Côte d'Ivoire 473 487 502 517 25,030 2.1%Philippines 6,050 6,031 7,189 7,640 406,610 1.9%Sri Lanka 1,142 1,155 1,287 1,414 76,597 1.8%Sudan 638 730 970 1,218 71,607 1.7%MEXICO 6,573 8,895 9,814 13,396 966,378 1.4%Nigeria 1,366 1,434 1,506 1,581 118,362 1.3%Vietnam 2,200 2,400 2,600 2,750 210,956 1.3%Cameroon 276 290 305 360 28,761 1.3%Romania 980 1,165 1,510 1,936 158,649 1.2%Bangladesh 1,958 2,094 2,848 3,180 262,822 1.2%Ethiopia 440 359 412 560 49,185 1.1%Colombia 1,578 2,021 2,261 2,852 271,332 1.1%Korea 7,035 6,830 7,069 7,316 884,417 0.8%Ukraine 553 1,084 1,596 1,806 267,054 0.7%South Africa 2,568 2,653 2,741 2,890 474,783 0.6%Poland 831 1,131 1,373 2,314 438,447 0.5%France 5,997 6,392 8,226 8,880 1,701,273 0.5%Brazil 3,850 4,050 4,278 4,836 1,418,649 0.3%China 6,915 9,284 14,383 19,652 6,656,279 0.3%India 8,499 8,250 8,404 8,800 3,125,235 0.3%Turkey 4,560 2,786 1,936 729 470,148 0.2%United States 13,000 12,850 13,236 13,633 11,254,789 0.1%Sources:Western Union Business Intelligence Departmentdata gathered from various organisation publications(IMF, Central Banks, UK's annual Balance of Payments publication, etc.)

The annual remittances represent an important part of the revenue generated in the countries, up to 15% of annual GDP for developing countries (Lebanon, Mali, El Salvador, etc).The total remittances received in China ($20 Billions), in the US or in Mexico ($13+ Billions), for instance, are greater or equivalent to the total wealth created in Lebanon, Haiti or Senegal in 2003!What is more, over the years, the flows of remittances keep increasing at significant rates. As an example, inbound to Jamaica: +6% in 2001, +34% in 2002, +11% in 2003.

From the qualitative point of view, most of the money sent to home countries contributes to improve the life of many, through social projects in healthcare, Education, and therefore is a real addition and/or alternative to Governments’ actions.

Various ways exist to send money, from the most informal (travel with bank notes in pocket) to the most sophisticated (electronic wire). The present study will mainly focus on the formal, non-banking segment. However, when necessary, references to money transfers operated by the purely banking organizations (bank wires) and the informal sector will be recalled.

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Your mission:

The outcome of the study is closely watched by Western Union Management team as it may be considered as basis for decision in coming action plan and long term strategy. You are asked to prepare a report to your Marketing Director covering the following issues:

1. What are the major Strengths and Weaknesses of the company?

2. What are the major Opportunities and Threats of the money transfer business environment?

3. What are the Key Success Factors (KSF) required to be an A-player on the French money transfer market?

4. What is your diagnosis of the main issues to be faced by the company on the market?

5. What major objectives would you define to target those issues?

6. Draw an action plan to delineate these objectives into concrete marketing actions. You will consider short-term / medium term / long term horizons.

7. What kind of issues should the company foresee when implementing these recommendations?

8. Western Union holds 4 branches in Vietnam. What do you think of its entry strategy in terms of local marketing approach? To what extent would your recommendations match with the Vietnamese money transfer market requirements?

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I. The Money Transfer Industry’s international environment

This section will analyze: the international migration, the market segmentation and the international competition dynamics.

1.1. International Migration Trends

The recent developments of international migrations have various causes that are likely to generate sustained trends and continuous movements of populations in the future.

1.1.1. The world is a vast area of disequilibria

The roots causes of migrations lay 3 main types of disequilibria: Demography, income and stability:

Demography

Throughout the times, humans have been moving from places to others in order to fill out empty spaces and allow optimal resource allocations. These continuous movements are fuelled by unequal population increases: areas with highest birth and/or lowest mortality rates experience rapid population growth and then face high density.

Europeans faced such issues during the last centuries and, therefore, migrated in so-called “virgin lands” (Americas, Africa, and Pacific).

Since the post 60’s, Africa, Asia and some parts of South America are recording tremendous increases in their demography. These areas are the regions where the population has been growing at the highest pace for the last 40 years (see Figure 1).

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Figure 1- Population doubling timeSource: UN 2002

If high demography is the root cause of emigration, the economic disequilibria is a major motivation to leave homeland.

Economic disequilibria

The quest for job and economic resources to support their loved ones (family) and enjoy a better life drives most of the migrants. As the labor supply is limited in the motherland, people choose to emigrate (by any means, even the most inconvenient or dangerous) to regions thought to offer better opportunities and economic relief.

The chart below describes how unbalanced is the wealth distribution throughout the world. The GDP per capita of an inhabitant of Luxembourg is 92 times the Indian’s or 230 times higher than what can expect a Nigerian!

Even, within given specific region, significant discrepancies exist. For instance, in the Middle East, a Saudi Arabian is, on average, 21 times “richer” than a Yemenite. Similar discrepancies apply to a Swiss or Norwegian compared to a Portuguese or a Slovenian.

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European Union EU 25+450 MM peopleGDP per capita ($)Luxemburg 46KPortugal 12KSlovenia 11KLatvia 3.5K

Sub-Saharan Africa706 MM peopleGDP per capita ($)South Africa 3.5KSub Sahara 0.2 – 0.9K

E. Europe, Balkans, Turkey, CIS402 MM peopleGDP per capita ($)Russia 2,4KTajikistan 0.2K

East Asia1,540 MM peopleGDP per capita ($) Japan 31KHKG 24KChina 1K

South East Asia /Pacific494 MM peopleGDP per capita ($) Australia 20KMalaysia 3.9KIndonesia 0.8K

South Asia1,260 MM peopleGDP per capita ($)India 0,5KBangladesh 0.3K

MENA364 MM peopleGDP per capita ($) Gulf 12K – 28KSaudi Arabia 8,5KYemen 0.4K

Economic Disequilibria: Europe, Asia, Africa

Figure 2- Economic disequilibriaSource: UN 2002

The migrant chooses to move where the economic promise appeals. But, more and more often, he is “pushed out” by insecurity and political instability in his country.

Political instability - Conflicts

The following map shows the world conflict regions:

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Figure 3- Conflicts in the worldSource: UN 2002

Violent conflicts and instability are widespread in the developing world, affecting mainly Africa, the Middle East, Southern and South East Asia.The most important causes of violence and instability are linked to stagnant or deteriorating economies, weak or illegitimate political institutions, or competition over natural resources:

Economic forces play a powerful role in shaping potential for violence. Poverty, stagnant or negative economic growth, gross economic inequality, and widespread unemployment can all feed into a strong sense of social grievance;

Countries with corrupt or unaccountable governments are more likely than others to descend into violent conflict and state failure;

Violent conflict also often stems from failures related to natural resource management: land scarcity, struggles to control natural and economic resources such as water and oil and uncontrolled and unsustainable population pressures.(Source USAID website)

Beside these 3 main causes (Demography and Economic disequilibria, Conflicts) other migration motivations include affective reasons, adventure or study. All together, they shape the migration routes and patterns.

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1.1.2. Migration Main Routes and Patterns

Below is displayed an overview of the world immigration which shows increasing trends over the years, especially since the mid 80’s.

Year

World population (Billions)

International migrants (Millions)

Migrants as share of world population (%)

Average annual change

(Millions)

1965 3.3 75 2.3 1.0

1975 4.1 85 2.1 1.0

1985 4.8 105 2.2 2.0

1990 5.3 120 2.3 3.0

1995 5.7 164 2.9 8.8

2000 6.0 175 2.9 2.2

2004 6.3 185 2.9 2.5 Source: Western Union Business Intelligence Department, from UN 2004 report

In fact, all parts of the world are migration destination. For the last 50 years, some regions have been the most important magnets for migrants: North America and Western Europe. However, the current trends are showing new major migration routes that may be reinforced according to the forecasts.

The traditional migration routes

North America (USA, Canada) and Western Europe (France, UK, Italy, Germany) have been recording most of migration inflows thanks to (or because of) their economic situation, immigration policies or for historical reasons (colonization for instance).

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The following chart summarizes the major migration routes toward Europe:

Migration to Europe (EU 25+)

From other world regions Iraq, Afghanistan Maghreb Western Africa Latin America, Carib. South Asia Central Asia China

From other parts of Europe Eastern Europe Russia Balkans Turkey

Figure 4- Migration to Europe

Similar charts apply to the North America countries with a higher weight for Latin American, Caribbean and Central America corridors.

Indeed, the migrants represent a significant share of the host countries’ population - Europe: 8.5%- USA & Canada: 11 %.( Source UN):

The following diagram summarizes the dynamics of migration in given European countries:

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Immigration in Europe - 2004 estimates

4.93

2.82.18 2.18 2.07 1.97

1.671.23

0.66

0

1

2

3

4

5

6

Ireland Netherlands UK Germany Italy Austria Sweden Belgium France

Net Migration flow (per 1000 people)

Figure 5: Immigration in Europe – Source UN

Ireland, a previously major emigration land, is becoming a favorite destination (with around 5 new migrants per 1000 inhabitants that settled in the country in 2004) since its economy has been restored.

The traditional European receiving countries (UK, Germany, Italy) are still keeping the pace despite already high stock of migrants, especially from new “European Union” members (for example, Poland or Czech Republic to the United Kingdom).

For reference, stock of migrants (2004 estimates):- Germany: 10 Millions,- France: 6 Millions,- UK: 4 Millions.

The US and Canada also have significant stock of migrants and continue to register sustainable flow-ins due to attractive immigration policies and education programs (the famous US and Canada Universities or the “Green Card Lottery” for example).

Beside the traditional receiving regions, “new” areas of the world are showing increasing migration dynamics.

The emerging magnets

Gulf States and Libya

The Oil Industry is driving increased migration into the Gulf States (Saudi Arabia, Kuwait, Qatar, United Arab Emirates) and Libya. Job seekers from the surrounding countries, from India, China or East Africa account for the bulk of the migrants. In addition, “Westerners” – Americans and Europeans – interested in setting up petrol or security related businesses, choose to move and settle in this region for either short or long term.

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Migration to/ in MENA

From other world regions East Africa South Asia Eastern Europe East Asia and China North America Other MENA to Gulf

Figure 6: Migration into Middle East & North Africa – Source UN

Former emigration areas

Other former emigration areas are becoming immigration countries (Russia, Kazakhstan, Japan, South Korea or Taiwan. Even India is recording increasing in-flows, especially in the southern part (due to job opportunities in the IT technology sector).

1.1.3. Projections in the future

The future migration trends will be driven by current indexes related to the disequilibria in demographic dynamics: the actual average population ages and birth rates significantly vary from one region to another, and the variances are expected to increase over the near future.

The chart below gives an overview of current trends of population growth per age group, comparing European countries with other regions (diagram 2):

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Popualtion Change by Age Group and Region in Millions, 2000-2050

-300

-200

-100

0

100

200

300

400

500

600

700

800

Sub-SaharaAfrica

East Asia &Pacific

East Europe &Central Asia

EU25+ Latin America &Caribbean

Middle East &North Africa

North America South Asia

Region

Mill

ions

of P

eopl

e

0-19

20-64

65+

I ncrease/ Decrease of Population by Age groups and Regions, Period: 2000-2050

EU 25RF/CIS

Figure 7: Population variance per age group – Source UN 2002

On one side, Western countries (European Union, USA, Canada) and the Russian Federation are facing an increasing weight of elderly ages while, on the other side, Sub-Saharan Africa, part of South Asia or the Middle East are recording constant renewal of their population.It is forecasted that in the near future, the people aged 60 years or above would account for more than half the EU and CIS population.

The discrepancies in birth ratios (very low in developed countries with an average close to 2 children per woman – sustainable in Africa or South Asia with up to 10 children per woman) is driving these divergent trends and the unequal changes in labor forces (Figure 8):

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-100

-50

0

50

100

150

EU-25 and OtherEurope

CI S - Caucasusand Eastern

Europe

CI S - CentralAsia

South EastEurope

Turkey GulfCooperation

CouncilCountries

Other MiddleEast and North

Africa

TotalMillion

s o

f P

eop

le

2025 2050

Changes in total labor force in Europe, MENA and Central Asia, 2005, 2025, 2050

Figure 8: Forecasted changes in Labor Force per region – Source UN 2002

By 2050, the labor force in the European Union and Russia is expected to decrease significantly. It is then predictable to witness African, Southern and Central Asian or young people from the Middle East to emigrate with objective to seek for the unfilled job opportunities in the following regions:

- the European Union, the Russian Federation or East Asia (due to lack of labor force), depending on the immigration policies;

- the Gulf Council countries (thanks to Oil Industry development).

Also, it is forecasted to witness more intra-region immigration (intra Africa, toward Libya for instance).

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1.2. International Market segmentation

1.2.1 Sending vs. Receiving Regions

Sending regions

Outbound Remittances by Region($Billions)

5 5 5 5

50 55 61 69

34

4529

3031

310

00

029

27

5155

5964

2726

-

50

100

150

200

250

2000 2001 2002 2003

North America

Asia Pacific & SEAsia

Southeast Asia

Middle East & NAfrica

Africa

Europe

Mexico

South America &Caribbean

Figure 9: Outbound remittances per region – Source: Western Union

The Western countries are the main sending regions as they constitute the major host countries of migrant population.

North America

The USA is the first sending country for migrant remittances: $61 Billions were sent from the country in 2003. This is 30% of the total remittances. Moreover, the trends are sustained as the total amount has been increasing at 8% on average since Year 2000.

Europe

Europe accounts for a third of the total money sent by migrants over the world, including France (7.5%), Germany (4.7%), Italy (3.7%) and the United Kingdom (3.1%).

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The Gulf region

Thanks to the Oil Industry, the Gulf is a major outbound region, especially Saudi Arabia and United Arab Emirates (U.A.E). As reference, Saudi Arabia was the Number 3 sending country with $15 Billions sent in 2003 (7.4% of total world remittance); UAE recorded $4.5 billions principal sent (2.2% of world total).

The table below shows the Top 10 sending countries:(Source WU Business Intelligent Department)

2000 2001 2002 2003 2003Global Remittances Outbound Outbound Outbound Outbound Outbound

($M) ($M) ($M) ($M) %1 United States 48,743 52,789 56,636 61,157 30.2%2 France 11,579 12,456 13,286 15,220 7.5%3 Saudi Arabia 15,411 15,140 15,875 14,916 7.4%4 Germany 7,382 7,344 7,899 9,530 4.7%5 Italy 4,857 5,778 7,860 7,399 3.7%6 United Kingdom 4,897 4,845 5,314 6,257 3.1%7 Japan 8,188 6,910 7,257 5,685 2.8%8 China 3,700 4,000 4,500 4,800 2.4%9 United Arab Emirates 3,962 4,210 4,400 4,500 2.2%

10 Russia 1,322 2,109 2,763 3,613 1.8%Total World 167,722 177,253 190,659 202,351 100%

It is important to remember that, while the migrations trends drive upward the amounts of remittances, the country regulations related to the FX policies (Central Banks’ controls on changes) tend to limit the amounts of money flowing out. The limitations don’t often apply to remittances received (expect in case of money laundering tracking).

Receiving regions

The split of inbound remittance per region of the world is presented as following:

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Inbound Remittances by Region($Billions)

3 3 3 3 417 19 20 22 237 9 10 13 18

4850 54

6263

1414

15

1718

1517

18

2227

1212

13

14

14

3133

41

47

49

22

2

2

2

1313

13

14

14

-

50

100

150

200

250

2000 2001 2002 2003 2004

United States

Canada

Asia Pacific

Southeast Asia

Middle East & NAfricaAfrica

Europe

Mexico

South America

Caribbean

Figure 10: Inbound remittances per region – Source: Western Union (Source WU Business Intelligent Department)

The developing countries record a significant part of the inbound money transfers. However, the USA and Europe also highly benefit from the migrant remittances. China is the biggest receiving country with $19.7 billions recorded in 2003 (9.1% of world total), followed by the USA and Mexico ($13+ Billions).

France is the European Number 1 inbound country (Number 4 worldwide) with $8.9 Billions received in 2003.The biggest African receiving countries are Morocco ($3.6 Billions in 2003), South Africa ($2.9 Billions) and Nigeria ($1.6 Billions).

The table below is a summary of the Top 25 receiving countries:(Source WU Business Intelligent Department)

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2000 2001 2002 2003 2003Global Remittances Inbound Inbound Inbound Inbound Inbound

($M) ($M) ($M) ($M) %1 China 6,915 9,284 14,383 19,652 9.1%2 United States 13,000 12,850 13,236 13,633 6.3%3 Mexico 6,573 8,895 9,814 13,396 6.2%4 France 5,997 6,392 8,226 8,880 4.1%5 India 8,499 8,250 8,404 8,800 4.1%6 Philippines 6,050 6,031 7,189 7,640 3.5%7 Korea 7,035 6,830 7,069 7,316 3.4%8 Germany 4,620 4,798 5,257 6,695 3.1%9 Brazil 3,850 4,050 4,278 4,836 2.2%

10 Spain 3,417 3,665 3,959 4,715 2.2%11 United Kingdom 2,445 2,407 2,543 4,429 2.1%12 Pakistan 913 1,022 2,341 4,191 1.9%13 Italy 3,103 3,223 3,627 3,876 1.8%14 Morocco 2,161 3,261 2,877 3,614 1.7%15 Bangladesh 1,958 2,094 2,848 3,180 1.5%16 Egypt 2,852 2,911 2,893 2,961 1.4%17 South Africa 2,568 2,653 2,741 2,890 1.3%18 Colombia 1,578 2,021 2,261 2,852 1.3%19 Portugal 3,179 3,340 2,688 2,824 1.3%20 Vietnam 2,200 2,400 2,600 2,750 1.3%21 Lebanon 2,110 2,308 2,544 2,728 1.3%22 Australia 2,440 2,074 2,185 2,619 1.2%23 Poland 831 1,131 1,373 2,314 1.1%24 El Salvador 1,751 1,910 2,052 2,154 1.0%25 Guatemala 1,701 1,826 1,950 2,106 1.0%

Note that currently 3 regions are net outbound: North America (excluding Mexico, -$48.4 Billions in 2003), Europe (-$7.1 Billions), Middle East & North Africa (-$8.8 Billions). Asia, Africa, Caribbean, Central and South America remain mainly receiving regions.

The biggest corridors include (for instance) USA to China, USA to Mexico, Saudi Arabia to USA, UK to India, Italy to Romania or France to Morocco.

Beside country-to-country money transfers, domestic remittances are also recording increasing importance.

1.2.2 Long distance transfers and Intra remittances

The money transfers apply to long distance corridor (country-to-country) or to domestic flows. As example, the following chart displays the preferred destination where African migrants sent money to.

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% Point Shift vs. previous survey

% sending money to….

Source:

Other country (7%)

Home country (98%)

Host country (7%)

0

0% -1

1%

-1

5%

0

1%

-1

5%

+5*

87%

Base: Total African sample in sending countries (1403)

0

1%

Where African migrants (sample surveyed) are sending money to?

Figure 11: Where African migrant send money to?

It appears that the majority (98%) of migrants send money to people back in their home country. However, a not negligible proportion (7%) also sends money within the country where they usually live.

1.2.3 Individuals vs. Organizations and Companies

Beside the remittances generated by individuals (mostly migrants), the bulk of money transferred worldwide is coming from the formal organizations and companies in their daily activities (Business to Business B2B: bill payment, venture capital, speculation, etc).

This Money Transfer market is dealt with by the banks and other financial institutions, within the International Banking System, according to specific rules and principles, under respect of the international regulations.

The present study will focus on the Money Transfers operated by individuals (Western Union’ core business).

The individuals involved in money transfer mainly consist of working migrants, students studying abroad and tourists.

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Working migrants

Either self-employed or working for a company or organization settled in host country, the working migrants represent the majority of the MT market (when excluding the B2B segment).

Students

Generally, students are receivers of the money sent by their family from the home country. However, they must be considered in the analysis as:

they can play an important role in the choice of channel,

in a smaller scale, some of them are full MT actors (part of the what they earn with the part-time student jobs is sent to support the family, for instance younger brothers and sisters studying in home country),

part of the current migrant workers arrived in host country preliminary for studies: students today = workers of tomorrow.

Tourists

Some tourists may encounter cash shortages when visiting a foreign country, and therefore, have the necessity to receive (or send) money. However, they account for a minor share of the total remittances. Most of them use specific travel arrangements including the traveler cheques, international payment cards (Visa, MasterCard, etc.) or bank to bank wires.

1.2.4 Regular Remittance / single-occasion transfer

Another market segmentation may consist in distinguishing regular remittance and single-occasion money transfer. Indeed, the former type is most convenient to consider in a business model, the latter coming as additional.

1.2.5 Key customers needs

There are 6 main segments of consumer needs as identified by the quantitative analysis of tracking data (Source: Western Union Business Intelligence Department):

Safety: “Safety first” – the need to feel safe, both rationally (safe arrival of our money) and emotionally (personal safety when sending money);

Reliability: “Do what you say you will” – the need to have a well run service that meets consumer expectations and doesn’t disappoint on service or products;

Speed: “Need for Speed” – the need to get money across large distances straight away, particularly in emergencies;

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Network: “Close to home” – the need to have an easily accessible, central location to send money from;

Convenience, POS experience: “Life’s hard enough” – the need for making one’s life a little easier because we face so much difficulty in other aspects of our lives;

Value for money: “Money Matters” – the need to save even the smallest amount of money as money is a struggle in our everyday lives.

These needs are valued differently, Safety and Speed being the most important features for the migrants when sending money:

29%

24%12%

14%

11%

10%

Valuing the needs segments

Money matters

Need for speed

Life’s hardenough

Safety first

Close to home

Do what yousay you will

Figure 12: The key customers’ needs

Having analyzed the market potential through the migration trends, the target remittances and the consumer segmentation and requirements, it appears necessary to know who are the world major MT players and their strategy to capture the potential.

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II. International competitive analysis: dynamics of the MT Industry

Various methods exist to transfer remittances. A proposed classification could distinguish, on one hand, the informal means and, on the other hand, the formal methods:

2.1. Informal methods

Among the informal methods, some transfers are operated by individual person (purely informal methods), others are completed through non official paying services:

2.1.1. Non-business ways

Thanks to the development of the transportation means (personal car, bus, ferry, airline) it is easy to travel all around the world. Taking advantage of this variety, people manage to transfer valuables by either:

- taking with them when traveling:

- having them delivered by relatives or close friends: here Trust is a major requirement as the sender has neither control on the process, nor recourse in case of failure.

In both cases, security is a concern and the money is at risk due to custom and police investigations.

A rough estimate, based on the average percentage of people who declare to use most often the informal means (see chart xx) gives a remittances total around $17-$23 Billions for year 2003.

2.1.2. Informal businesses

Other non-official but organized methods are in use. These methods are actual business activities as the sender often pays to get the service. Below are listed the most used methods:

- Community-based arrangements. Example: the “Hawala” for South Asians (Indians or Sri Lankans): a well known member of the migrant community has, in the pair-country, a correspondent in charge of delivering the amount of money required to the final recipient;

- Send through crew members of ferry or airline;

- Delivery by coach or truck drivers;

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- Some travel agencies.

The total remittances involved in this method can be estimated at around $11-$15 Billions for 2003. The table below is a summary of the estimated remittances transferred by the informal ways (calculation based % usage method as declared by migrants surveyed):

Estimated Informal remittances

Purely informal methods $16.6 - $21.2 $17.6 - $22.5Informal businesses $10.0 - $14.4 $10.7 - $15.2

Total $26.6 - $35.5 $28.2 - $37.7

20032002

2.2. Formal system

2.2.1. Bank-to-bank system

Not developed in the present study.

2.2.2. Non-banking Money transfer actors

Postal organizations

The Postal organizations remain, for millions of people, the most accessible mean of communication and message delivery available.

Under the umbrella of the Universal Postal Union (U.P.U.), the posts are present in 190 countries, forming the largest physical distribution network in the world (over 700 000 postal outlets).

Keeping pace with the changing communications market, Posts are increasingly using new communication and information technologies to move beyond what is traditionally regarded as their core postal business. They are meeting higher customer expectations with an expanded range of products and value-added services, including money transfer.

The UPU is a tremendous forum for cooperation between postal services helping them to ensure a truly universal network of up-to-date products and services.

The size of network is a major competitive advantage in the money transfer market as it fills a key consumer need: be “close to home”. According to a survey conducted by the UPU, only less than 4% of the world population (mostly in Africa) did not have access to the postal services in 2003 (Figure 13):

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Figure 13: Access of Population to mail deliveries in 2003Source UPU’s Review and Outlook 2004

The post offices worldwide generated $36.3 Billions in financial services (14% of total revenue in 2003). 51% of public operators surveyed by the UPU foresee a significant rise of the financial services share in the posts’ revenue over the period 2004-2008, in line with strategic deployment.

Other MT companies

Moneygram

Moneygram is the second largest remittance company in the world offering high speed service over 75,000 points of sale (P.O.S) throughout 170 countries. It holds a strong position in some fast-growing markets such as the UK (with 4,000 locations in partnership with Royal Mail), China (8,000 POS at ICBC locations), South Africa (Standard Trust Bank) markets in the world Having recently signed a partnership with 2 Caisses d’Epargne, it may expand its network over a potential 4,700 branches.Receiving network continues growing and has a foothold in most countries where WU has presence, especially in Africa.The Aggressive pricing on all corridors + special promotions

Vigo

Vigo is one of the largest privately held money transmitters worldwide founded 20 years ago. Over the last five years, Vigo has enjoyed a historical average annual growth rate of over 30% providing affordable and efficient payment services to 47 countries worldwide with over 47,000 payment points of sales. Its market coverage includes 45 states in the U.S. and a network of over 4,000 agents. Today, Vigo has one of the largest market shares in the U.S. to Latin America corridor.

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In May 2005, First Data Corp, the parent company of Western Union, leader in electronic commerce and payment services, announced that it has signed a definitive merger agreement to acquire Vigo Remittance Corp. This transaction is subject to regulatory approval and other customary closing conditions.

Travelex MT

Travelex is the world's largest foreign exchange specialist, with over 650 retail branches located at key airports, seaports and railway stations. Since its formation, Travelex has evolved from being a bureau de change operator into a dynamic and diversified worldwide money business.As for money transfer, Travelex claims to offer multi-product portfolio (in-minutes Cash to Cash, Direct to Bank, Pre-paid Card) and additional service features such us home delivery or loyalty program.

Ria Envia

Ria Envia is a remittance company that is currently expanding quickly throughout the corridors. At beginning, its focus was on the US to Mexico and Latin American corridors. Since the mid 90’s, Ria Envia has started to expand in Europe through Spain, and then Italy, Russia & CIS.

The current network covers 12 000 locations in 75 countries. Whilst the initial expansion into Europe was based on Latin American corridors, more recent movements highlight focus on Africa, Vietnam, CIS and Russia.

Moneytrans

Moneytrans is a smaller player with main focus on Europe-to-Africa corridors.Its main stronghold is the Belgium-to-DRC remittances. Their strategy: cut prices + willingness to enroll any type of partner to extend their network. Their slogan: “all local businesses can become a Moneytrans agent”: bureau de change, travel agents or car rental agents, GSM shops, call centers or shops in stations or airports, even supermarkets.

The table below summarizes the different methods used by a sample of Africans living in Europe:

24


79

25

3558 213933

4841

3

87

74

272425 30

3101

4112

63

191615 20

10000

42

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10 65 9

AN

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TR

AN

SF

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AN

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Wes

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Mon

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%

Everused

Lastyear

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Method usage (Sample of Africans in Europe)

Base: Total African sample in sending countries (1403), survey conducted in Q1-2005Source:

Figure 14: Money transfer method usage

58% of the Africans declare to use most often the MT companies (including Western Union 42%) to send money to their loved ones;

15% prefer the informal means (“Taking it with me”, “Giving to others” or by bus/airlines crew members);

the remaining (27%) use more often the banks, postal offices and others money transfer methods.

III.

IV. The French market

France is a major country for remittances either for sent or received transfers. Second largest outbound country (with 7.5% of total money sent by individuals in 2003), it represents an attractive but demanding market.

3.1. Market potential

After the Second World War, the Decree of 19 October, 1945 completed by the Decree of 2 November, 1945 declared France officially open to immigrant workers and their family in order to increase the birth rate in France and fill the gap on labor force needed for reconstruction. The French immigration policy has followed two principles:

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Equality: aimed at giving the same rights with no national, religious, racial or cultural distinction, Integration: corresponding to the presumption of capacity and degree of

integration in the French society depending on the immigrants' origin.

This policy, fostered by strong links with former colonies, proved highly appealing to migrants from neighboring European countries (for instance Italy, Portugal, Spain or Poland) and from Africa (mainly North Africa).

However, after a 30-year period of economic growth (between 1945 and 1975), economic recession led to stricter entry policies for immigrant workers. Even more, since the beginning of the 80’s, the goal has been to encourage (or to force) the return of immigrants in the country of origin through financial helps or various regulatory acts. For example:

- The “Bonnet” law of 10 January, 1980 which stated that the entry or residence of illegal immigrants was considered a threat to public order and that, therefore, they had to be expelled from the French territory;

- The “Peyrefitte” law in February 1981 legalized the control of immigrants' identity by the police as a means to prevent illegal immigration;

- The “Pasqua” law of 9 September, 1986 gave the right to regional authorities to decide whether on the possibility to escort illegal aliens back to the border. This law also reduced the number of immigrants who could get a residence permit.

- The Circulars of 24 June, 1997 and of 4 November, 1998 established a “contract of reintegration in the country of origin” (“Contrat de réinsertion dans le pays d’origine”).

Nevertheless, France remains a strong migration place as, on the other hand, several legislative acts keep the country’s magnetism.

Immigration sources

The migrants living in France are from various origins. However, beside the “Europeans”, those from Africa represent the biggest share. As reference, Maghreb migrants (Algerians, Moroccans, and Tunisians) granted a residence permit (“carte de séjour”) accounted for over 30% of total resident permits delivered by the French authorities in 2002.

It is estimated the stock of migrants in France in 2005 is 6.3 millions, 10% of the total population. The stock of migration has increased at around 5% growth other the years 1990-2005.

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Among them, a variable percentage (15% to 25%) consists of potential remitters as they are young active and still keep strong links with their country of origin.

The following pies (figure 15), based on residence permits delivered in 2002) is a good indicator of the emigration countries.

Figure 15: Residence permits delivered in France in 2002- per migrant originSource: http://www.interieur.gouv.fr/rubriques/a/a4_publications (French Homeland Ministry)

Also, the estimated Diaspora size per community shown in the following table:

Algeria 1,000,000 Madagascar 150,000 Morocco 1,000,000 Drc 130,000 China 500,000 Congo 120,000 Israel 500,000 Togo 80,000 Senegal 500,000 Benin 60,000 Ivory Coast 300,000 Pakistan 55,000 Mali 300,000 Colombia 50,000 Vietnam 300,000 Romania 50,000 Tunisia 250,000 Comoros 30,000 Cameroon 200,000 Brazil 25,000 Haiti 200,000 Peru 25,000 Turkey 170,000 Ecuador 10,000

2005 estimated Diaspora size (Source Western Union Marketing Department)

Migrant profile

27

http://www.interieur.gouv.fr/rubriques/a/a4_publications


The following table (based on residence permits delivered by the French local authorities in 2002) hints that over 20% of all immigrants have got a regular paying job and therefore may be considered as potential remitters:

1er titre

Motif de délivrance Total % Evolution

2002/2001Total % total

délivranceEvolution

2002/20012001

Salarié & non salarié 125,577 20.2% 38% 38,678 31% 7% 36,158

Etudiant 146,837 23.6% 13% 59,369 40% 6% 55,830

Membre de famille 155,982 25.0% 3% 74,874 48% 8% 69,412

Renouvellement et délivrance de plein droit 64,170 10.3% -43% - 0% -

Séjour habituel 45,591 7.3% -22% 2,030 4% -15% 2,391

Visiteur 30,271 4.9% 1% 10,502 35% -5% 11,041

Ressortissant CEE ou EEE Retraité ou Pensionné 18,717 3.0% 1% 3,450 18% 2% 3,368

Etranger malade 8,987 1.4% 26% 3,370 37% 17% 2,891

Refugié politique 12,301 2.0% 1920% 7,247 59% 25% 5,816

Ressortissant CEE ou EEE non actif (ni Retraité ni Pensionné ni Etudiant) 7,875 1.3% -2% 5,467 69% -10% 6,077

Motif non déterminé 3,061 0.5% -51% 860 28% -40% 1,439

Asile territorial 773 0.1% -7% 208 27% -25% 279

Artiste 740 0.1% 13% 242 33% 15% 210

Apatride 465 0.1% 36% 110 24% 43% 77

Titulaire d'une rente d'accident du travail 461 0.1% -51% 192 42% 170% 71

Etranger né en France 196 0.0% -4% - 0% -

Retraité 581 0.1% 14% 455 78% 37% 331

Etranger ayant servi dans une unité combattante 542 0.1% -14% 422 78% -15% 496

Délivrance sur présentation de justificatifs 0.0% -100% -100% 1,452

Total 623,127 100% -7% 207,476 33% 5% 197,339

Total Délivrance 2002 Dont 1er titre en 2002

La délivrance de titre de séjour par les préfectures de Métropole (France) en 2002Part des 1ers titresEvolution 2002/2001

Source: http://www.interieur.gouv.fr/rubriques/a/a4_publications (French Homeland Ministry)

In addition, a special focus on “independent” immigrants (see extract from a survey conducted by Research International, a Business Intelligence firm – Figure 16) gives an overview of the average migrant profile:

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http://www.interieur.gouv.fr/rubriques/a/a4_publications


59

40

1

18-34

35-64

65+

54

46

Male

Female

Broad demographic characteristics of migrants in France(Sample includes only people aged over 18 and excludes those under the direct responsibility of another migrant)

Source: Survey by

45183285

Full time

Part-time

Temporary work

Other status

Refused

51514

53122

0-1 yrs

1-3 yrs

3-5 yrs

Over 5 yrs

Born in host country

Refused

Sex (%) Age (%)

Length of residence in host country (%)

Working status (%)

Figure 16: Migrant in France - Profile

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Immigration mapping

Figure 17: Immigration in France - MappingSource http://www.interieur.gouv.fr/rubriques/a/a4_publications/

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Paris and surroundings are the preferred migration destination in France. Indeed, the Ile-de-France region (including Paris area) concentrated almost half of the migrants, the Rhone-Alpes and PACA regions being the other major receiving zones (Figure 18):

Répartition des délivrances de titres de séjour en France, par région métropolitaine - Année 2002

Paris - Ile de France, 46.3%

PACA, 8.7% Rhone-Alpes, 9.5%

Aquitaine, 2.8%

Lorraine, 2.3%

Pays de Loire, 2.2% Centre, 2.2%

Autres regions, 11.7%

Nord, 3.2%

Alsace, 3.3%

Languedoc, 4.3%

Midi-Pyrénées, 3.5%

Figure 18: Work permits delivered in France in 2002

The potential of the France remittance market can be summarized as following:

6.3 millions immigrants, most of them working in the Paris region, are from various backgrounds, mainly North Africa and African French-speaking countries. As they still keep strong links with families and friends in the home country, at least 20% of them have the need to send money to support their loved ones back home.

In fact, the total remittances sent from France (the second largest outbound market) is estimated at around $15+ Billions, 7.5% of total money transferred by individuals worldwide in 2003. France is also a major receiving country with over $9 Billion transfers, the 4th inbound market after the USA, China and Mexico.

Subject to variations related to the immigration policies and the country economic performances, the immigration flow-ins are predicted to record sustainable increases in the near future despite current slowdown. This will be a consequence of the forecasted loss of labor force over the period 2005-2050.

How does this overall market potential translate into business attractiveness?

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3.2. Market attractiveness

3.2.1. Market trends

France has officially stopped its flows of foreign salaried labor force for more than 30 years (1974). However, during the 1980’s and the 1990’s, France remained a country of immigration, despite reluctance about migration flows, the reappraisal of the concept of national identity and a feeling that illegal aliens are challenging the integration process of those already settled.

Foreigners in France have different social, cultural and geographical backgrounds. Usually, France has seen, not exclusively but mainly, migration flows coming from former French colonies, mandates, protectorates and departments due to historical, affective and cultural reasons.

In addition, there are economic, commercial and linguistic ties motivating these flows. So as, during the last 20 years, France has known a real diversification of its immigration with, for example, the arrival of people coming from South Asia (India, Pakistan or Sri Lanka). China is also playing an increase part in the immigration flows.

3.2.2. Attractiveness per corridor

At current trends, the French remittance market will consist of the following segmentation:

Pre-declining: Sub-Saharan African corridors, Indochina

Due to the French current restrictive immigration policies and the in-country resentments, the African migrants are likely to divert their route toward more appealing economic powers (for instance, USA and Canada, UK, Australia). Those countries have launched clear immigration programs and are building new partnerships with the Black Continent through local economic, cultural, educational projects.

The result will be a steady or even decreasing number of Sub-Saharan African living in France, and therefore, the reduction of the related remittance market.

Similar declining trends may also apply to Indochina corridors (Vietnam, Laos, and Cambodia). Here, the communities are mainly composed of 2nd or 3rd generation migrants with limited ties with country of origin. The bulk of migrant flow happened in the 70’s due to political and economic uncertainty. Today, the people in home country enjoy stability and economic relief and therefore are less willing to emigrate.

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The African remitters are very price sensitive and volatile: they tend to shop around for best value for money. However, so far, the competition has not been intense on those corridors and, therefore, prices have not been driven down massively. The trends may change in the near future as new actors have lately entered the arena and it is being witnessed new competitive moves and activities. Also, it is to notice that the average amount sent on this corridor is low (not more €300 on average); this means less profitable customers.

Mature corridors: North Africa

Alike Sub-Saharans, the North Africans weight for an important part of the French money transfer market. It may be too optimistic to predict a significant increase of this segment in the near future as the involved communities (Algerian, Moroccans and Tunisians) are also facing tightening border controls. However, the geographical proximity is a good help to encourage uninterrupted flows.

With these crossed effects, it is right to foresee a steady remittance market potential on the “Maghrebian” corridors.

The competition pressure is also low as only few formal money transfer companies (excluding Banks and the Postal Organization) are playing a significant role on these corridors.Like Sub-Saharan Africans, the average amount sent on this corridor is low.

Growing corridors: China, New EU Members

Thanks to China’s tremendous economic growth (more than +10% per annum for the last 10 years), Chinese migrants, including those living in France, tend to send increasing amounts of money to take advantage of business opportunities in the country. As reference, the inbound remittances have been 40% higher than previous year on average during the period 1998-2003. Similar growth rate also applies to the France-to-China remittance corridor. The trend is expected to foster as it is less restrictive to emigrate since the new Chinese regulation launched in 2005.

Chinese are “High principle senders”: the average amount sent is around €1,500, generating high margins per capita.

In May 2004, the European Union (E.U.) extended to 10 new countries (most of them former USSR satellites). The Enlargement has allowed an easier migration from those countries to Western Europe. France has been one of the preferred destinations even though the French job market is not fully and officially open to those migrants.

Also, probable future EU members such as Turkey, Romania and Bulgaria are also witnessing increased emigration toward France (and other European economic powers).

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These “new” immigration routes are driving upward the money transfer opportunities as the flow of remittances from France to the mentioned areas is growing at significant and sustainable rates.

The principal sent per transaction (P.P.T.) is above average, especially for Turks (€900-€1,000).

Emerging corridors: South Asia

More and more Indians, Pakistanis or Sri Lankans are settling in France, working in various economic sectors (Restaurants, Shop keeping, IT industry, etc.). The size of the community is still relatively small, but is heading to reach important stage, and therefore become a valuable remittance market. In addition, the average PPT is high and makes this corridor highly profitable. The competition consists mainly of a couple of formal remitters, banks and the informal sector (“Hawala”).

Other corridors: Latin America/Caribbean, North America, Western Europe, East Asia, MEPA

Overall, these corridors are recording low and steady growth and are not expected to increase in the near future due to the immigration trends and/or the migrant profile.

Haiti and some Middle East countries (E.g. Lebanon) may be excluded from this segment as for this analysis; their market potential and current trends being on higher levels.

Below is summarized the market attractiveness per corridor (Figure 19):

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Bu

siness A

ttractiveness

Hig

hL

ow

Market growth trendsLow Medium High

Market growth trend =

Current and forecasted growth of market potential

The size of globe indicates the

current market size (not fully at scale)

Business Attractiveness

includes competition

pressure, price trends, PPT, etc

North Africa

China

Sub-Saharan Africa

Future EU Members

Haiti

US & Canada

"Old" EU member

South Asia

Latin America

Middle East

New EU Members

Indochina

EE & CIS

Figure 19: France market attractiveness per corridor

3.3. Market environment

3.3.1. Political, regulatory pressures

The French market is highly regulated (for formal players). Become a money transfer in France require getting the banking license: this license is granted after fulfillment of strict criteria edited by the Central Bank related to financial assets, company’s ownership and management, probity, anti-money laundering, etc.

In addition, the Central Bank is entitled to periodical reviews and audits and can withdraw the banking license whenever it considers that the company is not matching some criteria.

Beside the requirements upon the remittance companies, several other rules apply to the customers, including maximum limit of money that can be transferred by any single person (€8,000 per day).

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3.3.2. Technological requirements and pressures

The money transfer activity itself does not require important and advanced technologies: anybody can carry coins or notes in his hand or pocket and go through a frontier! However, in order to be A-player (with fast service, extended network), it becomes necessary to use updated IT materials and software, plus adequate Telecom connections.

Therefore, significant pressures may come from partnership with Telecom and software providers.

Thanks to fierce competition between the Telecom players in the French market, the costs of connectivity are likely to decrease or, at least, remain at current levels. This lowers the providers’ pressures on MT companies.

Internet, as a way to transfer money, is increasingly becoming a stage not to miss in order to keep momentum and remain in the arena.

IV. Paris market: the frontline

4.1 Paris weight in France Remittance market

The Ile-de-France region represents more than half the remittances sent by immigrants with 52% share in 2004. The amount of money involved here is approximately $9.9 Billions (€8.1 Billions). This weight is in line with the migration mapping (Ile-de-France hosts 47% of aliens, with a higher percentage of working foreigners.

The second region for money sent is Provence-Alpes-Côte d’Azur (PACA) with “only” 9% of total outbound transfers.

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France - Sent Remittances per Region( based on 2004 estimates)

Ile-de-France 52.2%

Others 13.3%

PACA 9.4%

Rhône-Alpes 7.4%

Aquitaine 2.6%

Languedoc-Roussillon 2.8%

DOM 4.8%

Midi-Pyrénées 2.9%

Alsace 2.7%

Pays de la Loire 2.0%

Figure 20: France Outbound – Remittance per sending region

Paris (75), part of Ile-de-France, is the France biggest city, not only as Capital, but also for immigration and, consequently for remittances sent.

Indeed, the total volume of transactions in 2004 was around 21% of total France, 39% of the Ile-de-France region. The city of Paris only over performed the PACA and Rhone-Alpes regions put together!

The remittance potential of Paris is estimated at over $2 Billions (€1.6 Billions) for 2004. The money is sent by immigrants settled in Paris (“intra muros”), and also by a proportion of foreigners who usually live or work in the surrounding towns but, for various reasons, choose to make their transactions in points of sale located in the Capital city.

This put Paris as the main point of interest and stake, and where the focus should be turned to.

4.2 The route of immigration to Paris

The route of migration to Paris follows more or less the countrywide mapping, with most of the immigrants being from African origin (North Africans and Black Africans).

The Capital city host for 310,000 foreigners, 14% of total Paris population (Source: Paris council’s website http://www.paris.fr/portail/accueil/Portal). This is 10% of total

37


immigrants living in France and a higher share among working immigrants. However, the current trends is characterized by steady decrease of the stock of working foreigners (-3% to -7% over the past years.

The migrants are located in different areas depending on their origin. The following chart designed by STARCOM, an Advertising agency, gives an overview of the migration mapping:

Figure 21: Immigration in Paris – MappingSource: Paris council’s website http://www.paris.fr/portail/accueil/Portal

Most of foreigners from Africa are located in the north and east side of the capital continuing the settlement in the suburban areas of Saint-Denis (93) and Montreuil. The people from Europe mainly populate the west, while the Chinese are concentrated in the 3rd (center-east) and 13th district (South East).

Below is summarized the weight of migrant communities by origin:

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Foreigners in Paris - Percentage per origin

Geographic origin% of total

immigrantsSub-saharan Africans 13%Algerians 11%Moroccans 8%Tunisians 6%Portuguese 13%Spanish 5%Italians 4%Other EU 9%Turks 2%Other Europeans 7%Americans & Pacific 7%Indochina 2%Other Asians 15%Source: www.apur.org(Délégation á lá Politique de la Ville et á l'Intégration - Mairie de Paris - 1999)

70% of Paris immigrants come from countries out the European Community, mainly from Africa (Algerians, Moroccans, and Black Africans). Also the migration in Paris is more diverse than in the rest of France: for example, the Maghrebians, Turks and Europeans together weight for 78% of total foreigners in France, but only 58% of Paris immigrants. Here, the people from Asia and Latin America account for a higher share.

4.3 The remittances

As for money transfer, the Paris potential include also a significant part of the remittances sent by people not living in the city but settled in the suburban areas. Therefore, the city account for up to 21% of the total remittances sent from France.More or less, $1.6 to $2.1 Billions are sent each year by individuals from the Paris areas.

The share of remittance per corridor is more or less linked to the weight of each community in the total immigrant stock, the Moroccans being the biggest corridor. The African French-speaking countries (Senegal, Ivory Coast, Mali or DRC) account for a significant share.

The shares of Asians (Chinese, Indians or Pakistan) are on increasing trends. Among the European migrants, the “Iberians” (Portuguese and Spanish) are those who sent the more money to their country of origin.

4.3 Competition analysis

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The table below is an example of competitor list for given corridors (excluding Western Union):

Benin Money ExpressBolivia TravelexBrazil MoneyGram TravelexCameroon MoneyGram Ria Envia

Travelex Money ExpressTelecash Moneyline

China MoneyGram Bank of ChinaTravelex Hawala

Colombia Ria Envia VigoMoneyGram

Congo MoneyGram TravelexDRC MoneyGram TravelexDominican Republic Ria Envia VigoEcuador Ria Envia Vigo

MoneyGramGambia Ria EnviaHaiti CAM-ABPIndia MoneyGram HawalaIvory Coast MoneyGram Ria Envia

Travelex Money ExpressTelecash

Mali MoneyGram BIMMoney Express BOATelecash BHMBDM

Morocco BPM (Bank Chaabi) MoneyGramWafa Bank TravelexPost Office Ria Envia

Peru MoneyGram TravelexPhilippines BDE-BPI Travelex

MoneyGramPoland Polka ServiceRomania MoneyGram Atlassib

Travelex Mandat PostalRia Envia Eurotime

Senegal Ria Envia TravelexMoney Express

Sri Lanka MoneyGram TravelexTogo Money ExpressVietnam Ria Envia Vipharco

Travelex E.VIN.EServinco Vanves Export

It appears that the major competitors (global players) for WU in the Paris market are the following: MoneyGram, Ria Envia and Travelex MT.

The present competition analysis will therefore focus on those global players. However, a paragraph will be dedicated to the Post office (through its postal mandate), the banks and some specific informal methods.

40


Moneygram

Moneygram is the second largest money transfer company in the world offering high speed service over 75,000 points of sale throughout 170 countries. In France, however, it has been mainly in Paris area with only 15 locations. Having recently signed a partnership with 2 Caisses d’Epargne, it may expand its network over a potential 4,700 branches.

Receiving network continues growing and has a foothold in most countries where WU has presence.The current strategy seems to rely on an aggressive pricing offer on all corridors with special promotions (see below an example of new price offer targeting the African corridors – figure 22). The pricing are supported by growing marketing presence (events sponsoring, ethnic Medias, etc).

Strengths

MoneyGram offers fast service (money available to receiver in minutes), with pricing below Western Union’s level.

The company has one step into the Post Savings Bank network (Caisse d’Epargne) with a possibility to extend its network.

It enjoys a good awareness among Latin American (L.A.C.) living in Paris thanks to excellent contacts with ethnic media.

Weaknesses

The current network is small in Paris (and France) and does not allow a homogeneous geographic distribution. What is more, some key partners (American Express, CPR Bank) who used to ensure strategic locations in Paris, recently terminated their contract.

The Service quality is at risk as their IT system frequently experiences issues, leading to customer dissatisfaction at points of sale.

There is a low awareness among key migrant communities in Paris (Africans) despite growing presence in receiving countries.

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Figure 22: Moneygram leaflet

Ria Envia

Ria Envia is a remittance company that is currently expanding quickly throughout the corridors. Initially (1988), its focus was on the US to Mexico and Latin American corridors. Since the mid 90’s, Ria Envia has started to expand in Europe through Spain, and then Italy, Russia & CIS.

Global reach is currently 12 000 locations in 75 countries, including France with 22 point of sales. Whilst the initial expansion into Europe was based on Latin American corridors, more recent movements highlight focus on Africa, Vietnam, CIS and Russia.In Paris, Ria Envia is still concentrated on specific ethnic markets (LAC, Vietnam, Haiti, Philippines and Africa).

Strengths

Ria Envia claims a multi-product portfolio (“Cash to Cash”, “Direct to Bank”, and “Account to Cash”), with additional product features such as SMS notification to receiver.

Leadership position on Latin American corridors: with high awareness among these communities (excellent contacts with LAC media),

42


knowledge of the market, local languages spoken at counters.Thanks to high flexibility, they are also able to offer low prices for in-minute services.

Weaknesses

Ria Envia does not hold in Paris a sufficient network: only 5 locations including 4 at Banco Popular’s branches.

Ria Envia is being scrutinized by the Police and the Authorities because of Compliance issues (lack of banking license, security at POS). This quasi-informal status in France is a threat for future as it may lead to turn down their activity.

Their Hispanic environment at location may be deterrent for other communities.

Figure 23: Ria Envia leaflet

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Travelex

Travelex is the world's largest foreign exchange specialist, with over 650 retail branches located at key airports, seaports and railway stations. Since its formation, Travelex has evolved from being a bureau de change operator into a dynamic and diversified worldwide money business.

As for money transfer, Travelex claims to offer multi-product portfolio (in-minutes Cash to Cash, Direct to Bank, Pre-paid Card) and additional service features such us home delivery or loyalty program.

In France, Travelex is available in 15 cities or town, in Airport and railway stations. It started in the money transfer industry mainly in Paris area with an aggressive pricing strategy.

Strengths

The diversified offer (including FX change, Banknote outsourcing or Traveler Cheques) is a key platform to attract remittance customers

Thanks to their business model, they are also able to offer low prices for in-minute services through special promotions.

Travelex is granted the Banking License to operate in France. This is an important asset allowing the company to own dedicated network. In addition, the presence in main Railway stations (Gare du Nord, Gare Montparnasse or St-Lazare) and airports guarantees reach of traveling migrants.

Weaknesses

The size of the network providing money transfer service is small (18 points of sales). What is more, due to current Vigipirate Plan, Travelex was asked to shut down their branches located in the train stations.

An unreliable IT system generates frequent troubleshooting and causes service quality issues (long waiting times, money delivery failures).Travelex was condemned by French Banking commission in 2005 for lack of compliance to the banking regulation. Therefore, they are “under the French Authorities’ spotlights”.

44


Figure 24: Moneygram leaflet

La Poste France

La Poste offers different types of money transfer, including cash-to-cash products (“Mandat Postal”). The company is not traditionally driven by profit, but is taking new steps toward this direction (especially since they have launched the Post bank (“La Banque Postale”).

Strengths

The size of the network is by far the most competitive advantage: 17,000 points of sales in France, over 100 locations offering money transfer service in Paris. In addition, the gigantic international network (under the UPU partnership) guarantees a full coverage of customers in receiving countries.

Thanks to their wide portfolio, La Poste already reaches the customer base and traffic (the consumers are accustomed to their counters). Also as a current partner of Western Union, it is gaining experience on the fast money transfer industry.

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As a state-owned organization, the company benefits from a sustained support from the French Authorities, and good connections with the regulators.

Weaknesses

Post offices in emerging countries are not reliable partners.

Internal organization is stuck into daily bureaucracy and social unrest (strikes)

The organization is not customer oriented (service quality). In addition, La Poste lacks knowledge of the remittance market and contacts within the ethnic communities.

Figure 25: La Poste’s leaflet

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The banks

The situation is different according to the capital origin of the banks:

Foreign Banks settled in France attract home country citizens and propose Cash-to-account or Account- to-Account money transfer. Few banks of this type also offer a Cash-to-Cash product but when they do, they often take large market share on the involved corridors (E.g. Chaabi Bank - Morocco, Isbank - Turkey), Bank of China.

More and more foreign banks are getting license to settle in France thanks to European Passport and they are recording increased awareness of the banking opportunities in ethnic communities: the remittance offer is leveraged as a way to acquire future full banking customers.

Most French native Banks (Société Générale, BNP-Paribas and Crédit Lyonnais for instance) have retail subsidiaries in receiving regions (Africa, Maghreb) but few of them show interest for the remittance business. Currently, they are developing strategies that are not leading to the MT business rationale:

going toward an entire cashless business model, outsourcing their cash activities;

refocusing on their core customer segments, “rejecting” the clientele of migrants.

However, first steps into the remittances Industry have been taken by a couple French banking institutions: Caisse d’Epargne on France-to-Turkey corridor or and Société Générale Account-to-Cash towards Africa.

Strengths

The money remitting architecture is already fully in place (no need for significant additional investments). Their systems are fully technology-friendly. In addition, in most cases, the distribution network is amortized, enabling a pricing flexibility.

French banks have large network in Paris area which allows a full coverage of customer base. Their also enjoy excellent ties with the regulators and the Media. They possess a strong financial capability to invest into new niches like MT business (especially banks with retail subsidiaries in receiving regions).

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http://www.credit-agricole.fr/

http://www.lcl.fr/

http://www.caisse-epargne.fr/


The main strength of the foreign banks is related to the natural buy-in by the communities: some key ethnic groups keep strong ties with companies of their home as they feel more confident at the point of sales (for example, the Chinese with Bank of China).

The home language is spoken at counters and they usually have a good understanding of the ethnic communities. Therefore, they benefit from excellent contacts and communication channels within the targeted market.

On the receiving side (home country), the network distribution is usually a great asset for instance Bank of China has 15,000 locations in China).

Weaknesses

The French banking institutions have little understanding of the remittance business rules and the related marketing as it is not part of their priorities. In addition, their Cash-Free and “Migrantless” strategy narrows the scope of reachable potential.

Beside that, the International Swift Procedure used by the Banks generates long delivery time preventing the banks to be A-players in the high-speed remittance market. Moreover, the Banking system traditionally imposes to charge fees to the customers at both sending and receiving sides. This contributes to reduce the value for money perceived by the consumers.

Foreign banks limited distribution network in Paris (lack of capital investment) and therefore look for partnership with local banks, with little success (bureaucracy and mistrust from French banks are deterrent). Sometimes, some banks are playing the informal way since they did not acquire the sufficient license to offer payment instruments. In this case, the risk of severe sanctions by regulators is pending.

Figure 26: La Poste’s leaflet

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Informal

The informal competition consists of various illegal methods to send money, usually focusing the big cities. Sometimes they are well organized, specifically when bordering formal sector (‘’industrial informal’’: Vietnam). Generally, there is no cross-community activity: informal transfers are managed by entities devoted, each, to a single corridor or community.

The informal sector exists and grows as the barriers to entry the French “official” market are important (regulation is strict). Therefore, the sector is prevented from getting into structured status.

In Paris, the informal means to transfer valuable exist in most of the immigration communities. However, some ethnic group have more established and widespread channels: for instance the Malian community (usually living in the “Foyers Maliens”, the Hawala system among the South Asian, the bus arrangements for the East Europeans, etc.

Strengths

The main competitive advantage of those methods is the low price as no significant investments are required to set up the business, neither are compliance or tax/social costs. The business model allows room for full flexibility.

Being corridor specialist, the informal remitters are close to the consumer base with full knowledge of the client needs. In fact, they appear as consumer-friendly.

Weaknesses

As corridor specialist, the scope of market is limited to the given community with little possibility to expand to other ethnic groups.The service quality is generally low and hazardous, and the reliability of the receiving side is extremely poor.The attractive sending fees often hide expensive FX change costs on the receiving side.

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V. Western Union

5.1. A global leader

Western Union is a global leader in money transfer and message services, with a history of pioneering service dating back more than 150 years.

- In 1851, a group of businessmen in Rochester formed The New York and Mississippi Valley Printing Telegraph Company, Western Union's predecessor company.

- In 1856, The New York and Mississippi Valley Printing Telegraph Company changed its name to The Western Union Telegraph Company, signifying the union of "western" telegraph lines with eastern lines into one system, following acquisition of a series of competing telegraph systems.

- In 1871, Western Union Money Transfer® service was introduced and became the company's primary business.

Western Union continues today to help consumers and businesses transfer money or make payments using money orders and other electronic systems. Consumers can quickly and easily transfer money to more than 225,000 Western Union locations in over 195 countries worldwide - the largest network of its kind. Western Union also markets more than one quarter billion money orders every year. With about $3 billion in revenue, Western Union remains an industry leader with an eye toward providing fast and reliable money and messaging services.

Also, Through the “Helping Hands” programs, Western Union reaches out to the communities and help them through a mix of community-based activities related to Education, Health and Human services.

Western Union Financial Services, Inc. is a subsidiary of First Data Corp. (listed on New York Stock Exchange).

Western Union strategy is to comply with all rules that apply to the business. A Compliance Department was even created to make sure that the company acts anytime in the most legal way. This is an important asset as it has led to build excellent relations with the French authorities and regulators.

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5.2 Mix Marketing

5.2.1 Brand

As shown in the figure below, Western Union holds the strongest brand equity in the market place.

Awareness quality: WU vs. competition

Source: Research International

Sending ATM cardInternet

Regular mail

Overnight courier

Send with a crew member

Give to others to deliver

Taking it with me

Send with bus/ truck drivers

Any travel agencies

Any post office

ANY BANK TO BANK

Any other MT competitor

MoneyGram

Western UnionR2 = 0.7913

0

10

20

30

40

50

60

70

80

90

100

0 1 2 3 4 5 6 7 8 9 10

Familiarity (mean score)

Pro

mp

ted

aw

are

ne

ss

(%

)

Western Union (Q1 2005 comparable)

Western Union (Q1 2004 comparable)

Figure 28: Awareness quality

WU is still by far the most familiar of the formal MT methods, especially in the African corridors, and its Familiarity score has even improved since last year. The spontaneous awareness is at 88% for Western Union (96% when prompted), 22% for any other MT competitor.

The familiarity and predisposition to use WU remains also higher than other methods.

Trial of WU has remained high (75% of sample ever used WU money transfer service, with 66% having used in the past year). WU is the method most often by immigrants to send money from Paris to their home country. Still, the brand may lack some proximity, as some communities find it deterrent to “be American-branded” or a “multinational company”.

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5.2.2 Distribution network

Thanks to its current partnership with La Poste, Western Union has an extended network in Paris (and rest of France) offering the customers nearly 200 points of sales that cover the entire market place. In comparison, Moneygram claims 15 locations in Paris, Ria Envia has 5, and Travelex owns 18 branches. Most of the corridor specialists (Bank of China, Chaabi Bank, Isbank for instance) offer their service in only 1 to 3 branches.In addition, Western Union has a complete distribution mix in Paris with:

on one hand, the postal locations (shared services), allowing full geographical presence,

on the other hand, a series of dedicated locations where money transfer is the single activity, with ethnic counters (consumers’ native languages are spoken by clerks: Chinese, Spanish, Turkish, etc). These locations are situated close to community bases.

5.2.3 Product

As for money transfer, Western Union offers a product that is: Fast: the money is available to the receiver immediately after the sender has

completed the form and have it proceeded at the counter. Overall, the average time between the entrance in a dedicated location and the availability of the money at destination is around 20 minutes (including queuing time);

Convenient: the service is easy to use as even illiterate consumer can send or receive;

Reliable: actually, the delivery failures are minimal (close to 0%) and, when they occur, they are usually linked to fraud suspicion. A survey conducted by STARCOM (an Advertising company) shows that customers are confident in the product and rarely fears delivery failure when they transact with Western Union.

However, Western Union exhibits a single-product portfolio. Indeed, the company offers only the so-called “Will Call” which is cash-to-cash delivery product: cash is deposited at one end from the sending consumer, and the outcome, on the other end (receiving side) is also in cash.

In comparison, some other MT companies or banks propose different products such as: “Account-to-Cash” “Account-to-Account” “Cash-to-Account” Bill payment, etc.

5.2.4 Price

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Western Union’s prices are premium. It is the first reason highlighted by consumers who reject Western Union’s method to send money home.

Indeed, 68% of those immigrants fell that the service is too expensive: “I don’t understand what benefits Western Union gives me for paying more”. They have a vital “need to save even the smallest amount of money as money is a struggle in our everyday lives”.

13

20

23

28

12

40

44

4

33

25

29

37

35

3

27

11

2

11

1

1

1

13

5

2

ANY MONEY TRANSFER COMPANY

Western Union

MoneyGram

Any other MT competitor

ANY BANK TO BANK

Any post office

Any travel agencies

Send with bus/ truck driver/ buses

Taking it with me

Give to others to deliver

Send with a crew member from a ferry or an airline

Havalla

Overnight courier

Regular mail

Internet

Sending ATM card

Other

%

Not used in last year Used in last year

Rejection of methods

Source:

Total rejection

3%

35%

37%

30%

25%

-

33%

13%

4%

44%

40%

13%

39%

26%

20%

6%

40%

+1

+3

+3

+5

+1

-

+1

+4*

-1

+2

0

-1

+11*

+14*

+2

-6*

+13*

% Point Shift

Base: Total main senders sample in Paris (394)

32%Don't know

8%Unfair exchange rate

8%Prefer current method

8%No Western Union location close to my home/ work

20%I am happy with the method I use

24%High commission

68%High price/ too expensive

n=25Reasons for rejecting Western Union

Figure 29: Rejection of methods

Below are presented some examples of price comparison between the major money transfer actors for given corridors.

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Example: Price comparison WU vs. others

Paris to Sub-Saharan Africa

From To Western Union Moneygram Travelex MT Ria Envia Moneygram Travelex MT Ria Envia

€ 0.00 € 50.00 € 10.50 € 8.00 € 8.00 € 8.00 31% 31% 31%€ 50.01 € 100.00 € 12.50 € 8.00 € 8.00 € 8.00 56% 56% 56%

€ 100.01 € 200.00 € 19.00 € 8.00 € 8.00 € 14.00 138% 138% 36%€ 200.01 € 250.00 € 24.00 € 8.00 € 8.00 € 16.00 200% 200% 50%€ 250.01 € 500.00 € 30.00 € 12.00 € 12.00 € 20.00 150% 150% 50%€ 500.01 € 750.00 € 39.00 € 15.00 € 15.00 € 24.00 160% 160% 63%€ 750.01 € 1,000.00 € 48.00 € 15.00 € 20.00 € 26.00 220% 140% 85%

€ 1,000.01 € 1,500.00 € 55.00 € 30.00 € 25.00 € 30.00 83% 120% 83%Average premium 111% 109% 46%

Amount sent Fee WU vs. Competitors %

Paris to China

From To Western Union Moneygram Travelex MT Bank of China Moneygram Travelex MT Bank of China

€ 0.00 € 50.00 € 10.50 € 8.50 € 13.00 € 30.00 24% -19% -65%€ 50.01 € 100.00 € 12.50 € 8.50 € 13.00 € 30.00 47% -4% -58%

€ 100.01 € 200.00 € 19.00 € 15.00 € 13.00 € 30.00 27% 46% -37%€ 200.01 € 250.00 € 24.00 € 15.00 € 13.00 € 30.00 60% 85% -20%€ 250.01 € 500.00 € 30.00 € 15.00 € 13.00 € 30.00 100% 131% 0%€ 500.01 € 750.00 € 39.00 € 15.00 € 18.00 € 30.00 160% 117% 30%€ 750.01 € 1,000.00 € 48.00 € 15.00 € 18.00 € 30.00 220% 167% 60%

€ 1,000.01 € 1,500.00 € 55.00 € 25.00 € 28.00 € 40.00 120% 96% 38%Average premium 56% 48% -30%


Paris to Colombia

From To WU special Moneygram Travelex MT Ria Envia Moneygram Travelex MT Ria Envia

€ 0.00 € 50.00 € 9.50 € 8.00 € 8.00 € 8.00 19% 19% 19%€ 50.01 € 100.00 € 9.50 € 8.00 € 8.00 € 8.00 19% 19% 19%

€ 100.01 € 200.00 € 9.50 € 8.00 € 8.00 € 14.00 19% 19% -32%€ 200.01 € 250.00 € 9.50 € 8.00 € 8.00 € 16.00 19% 19% -41%€ 250.01 € 500.00 € 14.00 € 12.00 € 12.00 € 20.00 17% 17% -30%€ 500.01 € 750.00 € 18.00 € 15.00 € 15.00 € 24.00 20% 20% -25%€ 750.01 € 1,000.00 € 18.00 € 15.00 € 20.00 € 26.00 20% -10% -31%

€ 1,000.01 € 1,500.00 € 39.00 € 30.00 € 25.00 € 30.00 30% 56% 30%Average premium 18% 18% -12%


(Source: Western Union)

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5.3 Customers’ perception and usage

For the past years, the awareness and familiarity for the key competitors have increased sharply among the ethnic communities in Paris (compared to Western Union), especially for MoneyGram and the informal methods, whilst banks have remained static.

This increased familiarity has led to a stronger predisposition to use the other Money transfer competitors and even, for some corridors, to a higher level of usage. Indeed, the range of methods used has broadened during the past 5 years (3 to 4 methods on average).

Black African corridors

The primary competition is from informal methods but formal method awareness is increasingly broad. MoneyGram has higher levels of usage and is improved compared to 2004 (+14% vs. past year). There are signs that Western Union's lead could be eroded. Both sustained usage and disposition for Western Union have declined as post offices improve and MoneyGram and Travelex have significantly increased their visibility and are gaining ground. The range of methods mentioned is typically high.

Haiti

Informal methods are popular among the Haitian migrants and the main formal competitor CAM has stronger presence, with usage significantly improved compared to 2004. There are signs of increased promiscuity with those methods.

Morocco

This is the strongest corridor for banks, and also for post offices - both have become more popular for sending money in the past year. Usage of Western Union is the lowest of all corridors, despite high awareness. The Western Union historic popularity has been diminished more recently.

China

The ownership of bank accounts, and usage to send money is high (led by Bank of China), and informal methods are also popular.

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Vietnam

Bank account ownership is also high within this community (especially linked to a high proportion in full-time education). The bank account is often used to send money back home. The use of post office and informal methods is also popular and Western Union's performance is relatively weak

Turkey

The ownership of bank accounts in the host country is lower than average, but two thirds of account owners have used it for money transfer in the past year. The use of post offices is also relatively strong, ahead of informal methods. The Money Transfer category is weak and this corridor is the strongest of all for banks (led by Isbank).

(Source: survey conducted by Research International in Quarter 1-2005)

5.3.1 Western Union’s revenue

The following chart is an indicator of the current impact of the environment on Western Union latest business performances.

Western Union performance Trends(Remittance by index: Base 100 = Jan 2004)

-

20

40

60

80

100

120

140

04 04 04 04 04 04 04 04 04 04 04 04 05 05 05 05 05 05 05 05

JanFebMar Apr MayJun Jul AugSep Oct NovDec JanFebMar Apr MayJun Jul Aug

0%

5%

10%

15%

20%

25%

30%

35%

40%

Amount sentindex

Revenuegrowth

Figure 27: Western Union performances in ParisSource: Western Union; modified to include remittance only as index

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In fact, while the other MT competitors seems to record increasing business growths in Paris market place, Western Union is overall experiencing almost flat level of remittances sent, with loss in revenue growth: in first quarter of 2004 (here January 2004 is chosen as period of reference), the business generated more than 30% growth versus previous year. Since then, the incremental revenue has been steadily decreased, reaching its lowest level in August 2005 (10% growth).

The decline is more visible on African corridors (for instance DRC, Ivory Coast, Cameroon, and Senegal) and the Latin America. In fact, Western has almost become niche player on some corridors like Paris to Andean (Colombia, Peru, Ecuador, Bolivia) or Brazil. These corridors are now strongholds of Ria Envia.

So far, the slowdown is mainly occurring in the Paris area: in the rest of France (“province”), where the other remittance competitors have not yet established strong position, Western Union is still delivering sustained performances, with revenue growths being far above those recorded in the capital city.

However, it is predictable that, in the near future, those money transfer companies, after having ensured “milk cow” corridors in Paris, will start to expand in the rest of France with strategic partnerships in the major cities (Lyon, Marseille, Strasbourg for instance). The entire Western Union Leadership in France may then be at risk.

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Documents

Cas Western Union 1