Western Union’s Expedited Offering Nears the Starting Gate

It's been a year since wire-transfer market leader The Western Union Co. announced that it would introduce an expedited bill-payment service with technology provider Yodlee Inc. that banks and credit unions could offer their customers (Digital Transactions News, Oct. 10, 2007). With the operational work nearing completion, the first financial institutions to take advantage of that partnership should have offerings up and running soon, an executive with Englewood, Colo.-based Western Union tells Digital Transactions News. “We're going to be seeing rollouts in the first quarter,” says Steven Kramer, vice president of electronic payments at the company's New York City-based Western Union Payment Services. The service will include next-day and expedited, or same-day, posting, but otherwise Kramer refuses to say much more about it until rollouts begin. The Western Union-Yodlee partnership, however, represents more than just two more companies pursuing a fast-growing market that Javelin Strategy & Research estimates could generate $5 billion or more in expedited bill-pay fee income for banks over the next five years (Digital Transactions News, Sept. 17). Redwood City, Calif.-based Yodlee has made a name for itself in Internet banking software. And Western Union, besides having direct connections to 6,000 billers, according to Kramer, is the leader in expedited payments with a 66% market share, Boston-based Aite Group LLC said in a September report about online bill payments. Western Union's network can provide expedited payments to 800 billers, the report says. What's more, many of those billers are financial companies, such as credit card issuers and providers of mortgage and auto loans, to whom consumers direct most of their expedited payments. Revenue generation in expedited payments is premised on the notion that consumers will pay a fee for same-day posting to avoid an even bigger late fee. Thanks to the 2007 agreement, financial institutions' online-banking sites will have a way to tap into Western Union's vast biller network using Yodlee technology. And its exclusivity provision will cut off access by Yodlee's competitors to that network, according to the Aite report. “The agreement was very positive for Yodlee,” report author Gwenn Bézard, research director at Aite, tells Digital Transactions News. But that same exclusivity could have downsides for Western Union and the bill-pay market itself, he adds. Yodlee's rivals have “a heavy footprint” with utilities and other billers that are less likely to receive last-minute payments than financial billers. “As a result, Western Union's unmatched relationships with financial-services billers and exclusive relationship with Yodlee will make it very hard for other bill-payment processors to offer a robust expedited bill-payment service through the online-banking channel. Unless Western Union decides to renege on its alliance with Yodlee, we don't see an easy way out of this situation,” the report says. It later says, “Processors should partner with Yodlee to resell its expedited bill payment product, even if it pains them to do so. They can't remain shut out of the largest expedited bill-payment network in the market (Western Union).” And by going steady with just one provider, Western Union might lock itself out of the broader consumer market and forgo good technology from other providers. “For Western Union, it leaves me wondering what they are trying to achieve here,” Bézard says. Whether those scenarios play out, however, won't be known until next year at the earliest. What's clear today is that vendors are looking for a way to tap the growing consumer demand to put bill payments off as long as possible while avoiding onerous late fees, especially from financial billers such as credit card issuers. According to a recent Western Union survey called the Western Union Money Mindset Survey, 20% of consumers pay bills late and 31% are waiting longer to pay bills. Consumers paid an average of 2.6 bills late in the past six months, according to the survey of more than 3,000 consumers conducted by Javelin for Western Union. Only 15% of consumers use expedited payments, which means the rest are getting hit with late fees, Western Union says.