Western Union Coming Back to Country

Johannesburg, Sep 01, 2008 (Business Day/All Africa Global Media via COMTEX) -- WU | Quote | Chart | News | PowerRating -- MUCH has been made in recent years of the "bottom of the pyramid" concept - evolving services and products, underpinned by sound business principles, aimed at reaching the world's poor. It requires thinking out of the box.

Traditional banking services, for instance, are too expensive for the poor. Rather than grow, their paltry savings are often gobbled up by service and administrative fees. Compounding the costs, banking centres are traditionally located far from where the poor live, which means transport costs them dearly. So many who are at the bottom of the pyramid remain unbanked.

In the financial services sector, the remittances industry is certainly one of the better examples of a service tailored with the poor in mind.

Aimed at the massive, and growing, global migrant workforce who leave home to pursue better fortunes abroad, remittance services enable migrants to send money home without the need to be formally banked.

One such firm, Western Union of the US, is set to re-enter the South African market after a seven-year absence and recently took some media representatives on a trip to Kenya, one of its mature markets.

Its distinct yellow and black branding is conspicuous on the bustling streets of Nairobi. But Western Union is keenly aware of the needs of its market and has rolled out its services to virtually every dusty outpost in Kenya.

Most poignant, perhaps, is its presence in Lokkichoggio, a United Nation s camp in northern Kenya near the border of Sudan that serves the refugees from southern Sudan.

When assessing the remittance contribution to some economies, its significance is apparent.

The economies of top remittance-receiving countries like Tajikistan and Moldova are both almost 40% reliant on money transfers, while in sub-Saharan Africa almost a quarter of Lesotho's gross domestic product is from remittances. Many economists are concerned about the high reliance of these developing countries on passive money streams. Then there are grumbles from some big sending countries, such as SA, about the large outflows from their economies.

But an analysis of migration patterns also tells a story of the massive skills sacrifices big transfer-receiving economies make. Kenya, for instance, spends as much as 30% of its national budget on education. But it loses about 10% of its skills every year, while the emigration rate of the tertiary educated rises to as high as 26%, according to World Bank data. Remittances are thus almost a form of compensation for those skills lost.

It is difficult to gauge the cost to consumers of sending remittances, because these are corridor-specific. But to transfer 5000 shillings (about R660) within Kenya, Western Union charges 10%; that cost rises when money crosses borders. However, Lisa McConnell, Western Union's marketing manager of special projects, says costs have decreased significantly due to increased competition.

Kenya is predominantly a receiving market, with 80% of transfers entering the country. And because the sender bears the cost of a transfer, the biggest priority for receivers is services and location, which is related to the cost of transport. Says Mark Adoyo, senior manager at Kenya Commercial Bank, one of Western Union's agents: "We are now taking the services much closer to home. A significant portion of monies received in the past was used for transport. People were spending up to $20 on transport, but that situation is improving because we are in virtually every town.

Michael Orieny, a Nairobi-based social entrepreneur, receives much of his donor funding via remittance from the US. He opts to use a delayed service, which reduces the cost. Cost, however, is not so much the problem as the cap on individual transfers, he says. Because of the limit of $7500 for each transfer, it means some transfers for big projects have to be staggered.

The increased security since the September 11 2001 terrorist attacks on the US and the associated tightening-up of financial services regulation have also affected the remittance industry. Says McConnell: "Because ours is a cash-to-cash industry, we're probably more regulated than the banks. We have a huge IT backbone that supports compliance. To a consumer, the process is seamless, but there are lots of checks and balances in place."

The global credit crunch has also hit the remittance market. "The pattern is very clear," says Willy Bett, head of the remittances division of Post Bank, Western Union's first agent in Kenya: "There is a direct correlation. If you see the economy slump, you see a slump in transfers. The numbers of transfers may be the same, but they send less, which obviously affects margins."

But Bett is also witnessing the impact of trade pacts on the market. "There is an interesting dynamic in Africa and the region. There is a trend of growing transfers between Kenya and Tanzania, and Kenya and Uganda, and this is clearly related to bilateral treaties. Business exchanges are increasing and so many of these transfers are now business-related, which means they also carry a bigger value."

Western Union's return to SA is expected to have a significant impact in the region because of its large migrant workforce. "SA is really the hub of Africa, so there should be a massive impact, even in mature (remittances) markets as ours is," says Adoyo.

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