When Western Union sent its first telegrams across the frontiers of America in 1851, it struggled against companies with competing, incompatible technologies. Years of fierce wheeling and dealing helped Western Union acquire and neutralise rivals.
Then a prestigious 1860 contract to build the first coast-to-coast telegram system - which critics incorrectly said would never work - solidified the company's dominance. Even the eventual spread of the telephone and radio didn't derail the company, partly because by that time, Western Union had diversified from simply moving words to moving money, too.
In 2006, Western Union sent its last telegram. Today the $5.7 billion company makes most of its money from the fees it charges when people transfer funds and pay bills - and by hedging exchange rates for currencies in over 200 countries.
But a history of scrappy transformation doesn't guarantee the future. Western Union's business is conducted mainly in person, and in cash, in a world where money cards, digital currency and mobile payments are proliferating. A friend can pay you back for his bar tab with a text message. Bitcoins can buy you a spot on a Virgin Galactic rocket. Big banks, meanwhile, are horning in on Western Union's market: the estimated two billion people worldwide who don't have checking, savings or credit accounts.
To anticipate where new, profitable niches will emerge and to keep costs in line, Western Union must transform itself into a digital company. But it also wants to preserve the core business that has provided so much for so long. CEO Hikmet Ersek says he searched for months to find the right CIO to lead the effort. And two years into the job, that man, David Thompson, says web and mobile technologies, along with a few irreplaceable proprietary systems, will be critical.
But, Thompson says, Big Data may matter most of all. Analytics could help Western Union sidestep the mistakes of familiar failures like Blockbuster and Borders. Understanding how people react to global migration pressures, geopolitical struggles, economic changes and natural disasters will shape Western Union's products and pricing, says Thompson, who is also executive vice president of global operations. "My team is starting to wake up to the fact that they're a partner in something that's really changing our company."
CEO Ersek is pleased with progress so far, but says, "We have a long way to go."
Upheaval in the financial services industry is being created by established players and entrepreneurs alike. Market-leading banks and credit unions offer mobile apps and on-the-spot loans. Startups are devising new ways to buy and sell with mobile phone swipes, scans and text messages. Bitcoins and other virtual currencies are now taken seriously by federal officials; Congress held fact-finding hearings on the topic in November.
These changes portend a "moment of creative destruction," says Lisa Servon, a professor at The New School who focuses on economic development and urban poverty. "Western Union sees the writing on the wall and, like everyone, is trying to figure out how to leverage new technology to improve their own services."
The question is whether Western Union will be fast and bold enough to emerge as a winner in the game of digital disruption. A slew of startups are clamoring to topple Western Union in the money-transfer business. "Establishing an infrastructure to operate legally and efficiently in a variety of countries will take some doing for startups," says Denee Carrington, a senior analyst at Forrester. "But Western Union can't just count on the fact that it's hard to insulate them forever."
Western Union's Ersek contends the company is already digital internally, conducting an average of 28 transactions per second. The real change the CEO wants is in extending digital capabilities to customers directly. But timing is everything. If Western Union overhauls basic customer interactions by throwing a lot of new technology at consumers, it risks alienating and losing them.
If the company moves too slowly, competitors will steal customers. Analysing customer behaviour will help Western Union find the right pace, he says, reeling off a series of IT-based ideas, such as analysing what customers do in social media and measuring the results of online and mobile marketing campaigns.
Details, details, details are important to him, to hone strategy. "We want to know when a Filipino customer in the UK goes to church on Sunday," he says, by way of example. That way, Western Union can create customised products based on those life details. The Philippines is one of the most popular destinations for money transfers. Maybe a customer is in a family mood after church and will send money back home if offered a Sunday discount. "Not many companies have such global data."
Western Union's customers are both an asset and a risk. They don't have bank accounts for a variety of reasons. Maybe they're unemployed or they've abused accounts in the past. Maybe they have too little money to open an account. Maybe they can't or don't want to provide Social Security numbers.
Some 8%, or more than 25 million, of the 317 million people in the US don't have bank accounts. In low-income areas, that number is much higher: In the south Bronx in New York City, it's 50%. The unbanked market in the US alone is worth $78 billion, estimates the Center for Financial Services Innovation, a nonprofit group that promotes public policies to help the underserved.
If Western Union is right in estimating that two billion people are unbanked and under-banked worldwide, that's 28% of the Earth's population who, by definition, even global behemoths like JPMorgan Chase and Deutsche Bank don't reach. Western Union's customer database, therefore, is of "enormous value," Ersek says. "You can't imagine."
For example, analysing the behaviour of so many under-the-radar consumers tipped Western Union off to the developing financial crisis in 2008, he says. Customers were sending less money in the average transaction and conducting fewer transactions, the data showed. This prompted Western Union executives to revise their financial expectations and warn Wall Street six months before others in the financial industry caught on, he says. "These customers are totally different than customers that typical financial companies serve," he says.
It's hard to say whether Western Union and competitors like MoneyGram unfairly exploit the unbanked, according to Servon.
Western Union also hedges currency exchange rates, profiting from the difference between what it paid when it bought a currency and the rate it charges customers when they come into a store. This foreign exchange revenue is a growing part of total sales - 24% in 2012, up from 21% in 2011.