Give Us Your Tired, Your Poor, Your Huddled Masses Yearning to Send Cash
Early in the summer of 2014, executives at Western Union offices around the globe began to notice something strange. The world’s largest money transfer company, Western Union Co. processes 31 transactions a second, and the money moves in distinct regional and seasonal patterns, like ocean currents or highway traffic. When disruptions occur or new patterns emerge, a knowledgeable observer can spot history unfolding in real time: The volume of transfers reflects the ebb and flow of nations’ economic growth and the vacillations of commodity markets. Natural disasters show up as sudden influxes of cash.
That summer more people than usual were sending money from Canada, Northern Europe, and the U.S. to Greece, Jordan, and Turkey. “We know every receiver and every sender’s name,” says Hikmet Ersek, the company’s chief executive officer and president. “You’d see all these names like Ismael or Muhammed or Mehmet.” On conference calls, amid discussions of financial results and social media marketing strategy, executives puzzled over the anomaly.
Around that time, Constantine Varvias started getting desperate calls at his office in Athens. Varvias runs more than 1,000 Western Union money transfer counters as an agent for the company, and government officials and aid organizations in the Greek islands were asking where to find them—and whether he could open some more. People were stumbling onto beaches from open boats, asking in Arabic where they could receive their money.
Varvias began talking regularly to Ersek, whom he’d known for years, and to Maureen Sigliano, a Paris-based vice president at Western Union who oversees its loyalty program, and together they parsed the rise in transfers to the region. Months before it became an international news story, the three realized that the humanitarian crisis created by the civil war in Syria was entering a new phase. People were beginning to leave the massive Zaatari refugee camp in Jordan, migrating through Turkey, then across the Aegean and into the Balkans. As they traveled, relatives in the Syrian diaspora were sending them money transfers for bus tickets, supplies, and smugglers’ fees.
All along the migrant route, Western Union prepared for the surge, putting up locations in the map’s few blank spots and stocking them with cash. Ersek persuaded his compliance committee to accept United Nations-issued refugee cards as legitimate proof of identity, and the company temporarily waived its fees for people who had them.
By the end of 2015 the Greek island of Lesbos was receiving 3,300 refugees a day. Right off the beach, in the Kara Tepe camp, Western Union hung its yellow-and-black logo on a tollbooth-size shed balanced on wooden pallets. Five hundred miles northwest, in the mountains along the border with Macedonia, a refugee camp sprung up in Idomeni, swelling the town’s population from 154 to 12,000. In January, as refugees endured freezing temperatures and tensions with Macedonian border guards, Western Union set up a counter under the terra-cotta roof of a former butcher shop near Idomeni’s railway station.
Ersek, born to a Turkish father and an Austrian mother, was particularly caught up in the unfolding crisis. He watched as refugees who’d received money in Istanbul showed up at Western Union counters in Sofia, then Belgrade, then up in Stockholm. To him their movements evoked those of his grandparents, Muslim refugees who’d fled in the opposite direction after World War I, from Bosnia down through the collapsing Ottoman Empire to the city of Izmir on the Anatolian coast.
But Ersek also thought about the future. Today’s receivers are tomorrow’s senders, and once installed in homes, they’d be sending money to those coming behind them. “One million Syrian customers,” he says. “Do you think they will ever forget Western Union? Never.”
The world’s attention to refugees waxes and wanes, but Western Union’s is unflagging. For years the company has been tracing the movements of “double belongers” and the remittances they send home. These émigrés, expatriates, immigrants, and refugees—the uprooted—are Western Union’s people, and right now we’re living in Western Union’s world. The UN counts 244 million people as international migrants, up 40 percent since the turn of the century, and 65 million people as forcibly displaced, the largest number since World War II. The World Bank estimates that $575 billion was sent in remittances last year, the majority from wealthier to poorer countries. That figure dwarfs the sums sent globally as foreign aid, and Western Union is the biggest player in the market, with a 13 percent share. It operates in more than 200 countries and territories, transacts in 130 currencies, and champions the idea that the free flow of money and people across borders ultimately benefits everyone.
To those who share that belief, the remittances the company moves between far-flung friends and family are globalization at its most democratic. But the backlash over the past year against open borders—and the very concept of double belongers—has been emphatic, and it has made Western Union’s business a target. Donald Trump has talked about taxing the remittances of American immigrant workers to fund a border wall, and other sender countries, including Bahrain, Kuwait, and Saudi Arabia, are considering similar taxes as part of immigration crackdowns. Governments are demanding greater oversight and accountability to prevent money from moving to terrorists, human smugglers, drug cartels, con artists, and gambling syndicates—some of whom have counted themselves loyal Western Union customers. More fundamentally, the technologies people use to lend and pay and give one another money are changing, threatening the competitive advantages the company has built during its 166-year history.
In response, Western Union is remaking itself. It grew up on the American frontier, however, and from the beginning has targeted and profited from people on the move looking for something better. It believes that way of doing business can survive in the age of Trump, Brexit, Islamic State, and bitcoin.
Here’s how a typical Western Union money transfer works: A person walks up to a counter in a convenience store in Chicago or a mall in Abu Dhabi and hands over cash she’d like “sent” to a relative in Manila or Managua or rural Kashmir. That sheaf of bills isn’t actually sent anywhere, of course; what travels is a 10-digit code that the sender relays to her waiting relative. This code, presented to an agent elsewhere in the world, triggers the payment of the appropriate sum from that agent’s store of cash, minus Western Union’s fee.
The company has 550,000 retail locations worldwide, most run not by Western Union but by agents it contracts with—from mom and pop pharmacies to chains such as Kroger Co., from Pakistan Post to the Industrial Bank of Korea. Every day or so, Western Union balances its agents’ accounts via partner banks, debiting those who’ve taken in more money than they’ve paid out, crediting those in the red, and paying everyone their share of the fees. Those fees vary based on the size of the sum, where it’s going, and how: For example, from the U.S. it costs $8 to send $200 in cash to El Salvador, and it’s $42 to send $500 to Burkina Faso using a credit card at WU.com. Like its competitors, the company also makes money off of foreign exchange, buying pesos, shekels, and yuan at interbank rates, then offering its customers less favorable terms. In 2016, Western Union’s average revenue per transaction was $16.
It’s a simple business model that dates back more than 1,000 years. Its earliest known ancestor, fei qian, or “flying money,” was also the first paper money: To minimize the risk of robbery and the burden of bags of coins, merchants traveling to distant provinces in Tang dynasty China were issued certificates that could be exchanged back into hard currency at their destination. Within a few centuries, a network of hawala money brokers had formed along the Silk Road, keeping synchronized balance sheets across vast distances. Accounts were settled infrequently—hawala means “change” in Arabic but also came to mean “trust”—and the network relied on the threat of blacklisting to keep members honest.
Until the mid-19th century, however, even flying money could travel no faster than a courier on horseback. The invention of the telegraph in the 1830s changed all that. Suddenly a message could flash across a continent in minutes. The promise of instantaneous information from anywhere in the world felt as revolutionary as time travel, spawning new habits and new businesses.
Among the latter was Western Union, which formed in 1851 as the New York & Mississippi Valley Printing Telegraph Co. By the end of the Civil War it had built the first transcontinental telegraph line and was soon carrying 80 percent of the nation’s telegraph traffic, making it America’s first telecom giant and one of the first industrial monopolies. Only the railroads rivaled it in size and clout. Western Union’s biggest customers were newspapers that paid for access to the Associated Press “news wire,” along with banks and brokerages that leased telegraphic stock tickers; its highest-margin business was renting sports tickers to illegal betting parlors. The company began its money transfer business in 1871, executing and verifying the transactions in an exchange of coded telegrams.
Five years later, Alexander Graham Bell offered to sell Western Union the patent to his “electric speech machine,” but the company saw it as a novelty item. In 1879, Western Union struck a noncompete agreement with the ascendant Bell Telephone Co., ensuring that the telegraph operator stayed out of the phone business. “I look at that as a failure of vision,” says David Hochfelder, a historian at the State University of New York at Albany who authored a history of Western Union and the telegraph. “It begins the long slide to obsolescence that takes 110, 120 years to play out.”
In later decades, Western Union showed flashes of technological innovation, replacing telegraph operators with a vast switched network of teleprinters. It introduced an intercity fax service in 1935, built a system of microwave transmission towers in 1945, deployed early data systems for the U.S. Air Force and U.S. Steel, and launched Westar, the first domestic communications satellite fleet. But, inexorably, Western Union’s anchor technologies became outmoded: telegrams supplanted by phones and cheap overnight mail delivery, telex systems overtaken by the personal fax machine and the desktop computer. Arguably the company’s best-known innovations were marketing ones—minor coups such as the singing telegram and the candygram.
By the early 1980s, revenue from Western Union’s once-formidable communications business had declined to the point that it was making more from transfers than messages. In 1986 the company lost $530 million, leading to a decade of buyouts, mergers, spinouts, and a Chapter 11 bankruptcy. It sold off its communications assets, and the remaining money transfer company was bought in 1994 for $1.2 billion by the credit card processor First Financial Management Corp., which later merged with First Data Corp.
As Western Union was being reshaped, the market was changing, too. The number of Mexican immigrants in the U.S. doubled during the 1980s, from 2.2 million to 4.3 million. The passage of the North American Free Trade Agreement in 1993 destabilized Mexico’s labor force, sending job seekers north, while at the same time liberalizing the country’s money transfer business—formerly a monopoly supplemented by “informal channels” (people carrying bundles of cash over the border). That year, Western Union mounted a marketing campaign called Dinero en Minutos and struck an agreement to set up counters at Elektra, one of Mexico’s largest appliance and furniture retailers. From 1990 to 2001 the number of Mexican immigrants more than doubled again, surpassing 9 million; the money they sent home annually more than tripled, to $10 billion, according to data from the Migration Policy Institute. When the U.S. Postal Service and MoneyGram International Inc. began offering competing money transfer services to Mexico, Western Union expanded into El Salvador, Nicaragua, and Panama.
In 1999, Ersek, then 39, was hired to run Western Union’s southeastern European operation out of Vienna. He’d grown up in Istanbul, but Vienna was his mother’s hometown and he knew it well. He’d studied economics there, and while getting his degree he’d also traveled Europe playing basketball for Austrian pro teams—the country’s neutrality meant they were invited to tournaments on both sides of the Iron Curtain. His first job after graduation was in sales at the credit card company Eurocard, where he rose through the ranks before a stint at General Electric.
At Western Union, Ersek’s peripatetic background positioned him to spot the pattern on the U.S.-Mexico border playing out elsewhere. According to the UN, the number of international migrants reached 175 million in 2000, up from 154 million in 1990. They were North Africans working construction in Northern Europe, Indians waiting tables in the Persian Gulf, Filipino nannies raising American children, families fleeing Congolese warlords. Western Union’s biggest European “corridor”—the industry term for flows between two countries—was to Albania from the U.K., as Albanians who’d fled there after communism’s collapse sent money home.
A few years after Ersek came on board, First Data hired Christina Gold, a former Avon Products Inc. executive, to run Western Union. She moved aggressively to tap the new flows of money, signing up agents such as Wal-Mart Argentina and the Post of Tajikistan. Western Union also kicked off a $300 million global advertising campaign with TV spots featuring flocks of yellow birds traveling to families around the world. The company sponsored Day of the Dead celebrations in the U.S., painted Hong Kong trolleys yellow, and plastered its logo throughout the government offices in Manila where emigrants filed their paperwork. In 2006, First Data, which was otherwise struggling financially, announced it would spin off the fast-growing money transfer business; Western Union went public that October.
The company’s expansion was shadowed, however, by accusations that it depended in part on criminals. Since the early 2000s, Terry Goddard, then the attorney general of Arizona, had been seizing Western Union wire transfers as part of an investigation into whether the company’s agents were serving as accomplices to drug cartels and coyotes bringing illegal immigrants over the border. Once on U.S. soil, the smugglers would stash their clients in safe houses until friends or relatives wired their fee, broken up into smaller payments to evade state and federal reporting requirements. A warrant application filed in the investigation detailed how “pickup operators”—middlemen who specialized in accepting and aggregating the transfers—would team with Western Union agents willing to overlook fake IDs in exchange for bribes and commissions. “It was a $1.5 to $2 billion operation a year,” Goddard now says, “mostly in cash, mostly over the wire.” In 2010 the two sides reached a settlement, with Western Union committing $94 million to reimbursing regional law enforcement, improving its internal anti-money-laundering program, and funding an external monitor.
According to federal prosecutors and regulators, the company has also been a valuable tool for fraud. From 2004 to 2012, agents in the U.S., Canada, Jamaica, Nigeria, Peru, Spain, and other countries helped process transfers for swindlers who elicited payments from their targets by, among other tactics, impersonating relatives in desperate need of cash. Another scam involved lucrative “mystery shopper” opportunities that supposedly paid people for evaluating Western Union’s services by sending money. The company’s involvement led to a deferred prosecution agreement, announced earlier this year, with the U.S. Department of Justice, Federal Trade Commission, and several U.S. Attorney Offices. The company agreed to spend $586 million compensating victims. (Its competitor MoneyGram has entered into similar agreements over the years, most recently a $13 million settlement in February 2016.)
What’s remarkable about the frauds recounted in the Western Union agreement isn’t so much that they went unnoticed, but that they were noticed and ignored. When a company compliance officer recommended terminating an agent who’d appeared in 63 internal fraud reports, a senior sales executive responded, “Let’s be careful here.” An agent in the U.K. identified in 2010 by a company compliance analyst as “the number one paying Agent location of reported fraud in the world” is still in operation today as a Western Union agent. According to a written statement from the company, the agent has shown “a dramatic decrease in fraud complaints dating back to 2011.”
In a conference hall at the company’s suburban Denver headquarters on a morning in mid-April, Ersek looms over a lectern. He stands 6 feet 2 inches and has a booming voice, thick upswept hair, and a slightly unruly enthusiasm. At the round tables spread in front of him are dozens of company managers from all over the world, chosen as “WU Way Change Champions.” (The WU is pronounced “woo.”) They’re the evangelists and shock troops for a global restructuring Ersek set in motion last year, and he’s exhorting them with a fervor incommensurate with a man who hasn’t yet eaten breakfast. At one point he waxes nostalgic about his early years at the company: “I woke up in the morning and thought, OK, I’m bored, which country should we open today? Let’s go to Tajikistan.” He had coffee with someone from the reserve bank to settle the terms, and that was that. “We built it and they came, we built it and they came,” he says. “We were riding the globalization wave.”
Today there are few lands left for Ersek to conquer—Western Union is everywhere except in Iran and North Korea. The company has pushed into the payments business, helping people settle their mortgages and electric bills, but the vast majority of its revenue still comes from person-to-person transfers, and 90 percent of that business is in cash on both ends. That’s partly a testament to the number of places where mobile banking or, for that matter, banks aren’t part of economic life—remote villages in developing countries as well as poorer precincts of the wealthy world.
Over the past decade, Western Union’s margins and market share have shrunk in the face of new digital and mobile competitors. TransferWise Inc., a six-year-old service, spares customers cross-border bank charges by using software to mix and match transfers within a single country. (Senders moving money from Japan to Brazil, for example, have their money routed to other receivers in Japan, with mirroring transactions taking place on the Brazil side.) Abra, rolled out earlier this year, is one of several apps using the bitcoin blockchain rather than banks. And MoneyGram, the perennial Pepsi of the industry, is about to be acquired by Ant Financial Services Group, a Chinese company controlled by Alibaba Group founder Jack Ma—a development likely to infuse it with more money and ambition.
In the rhetoric of its challengers, Western Union is a dinosaur, protected by its size but doomed to be disrupted, and meanwhile trampling on consumers. Its dominance across so many corridors insulates it from competitive pressure, and its business model, with multiple agents and banks taking a cut of each transaction, passes built-in costs along to customers. “When you look at a Western Union transaction, there’s anywhere from four to seven hands in the pie,” says Bill Barhydt, Abra’s founder. “That means they all need to make money in order to be motivated to support the transaction.”
Development economists, for their part, see the company’s transfer fees as a drag on the finances of the poor. The World Bank estimates that fees eat up 7.5 percent of the remittances sent globally. That number is almost 10 percent in sub-Saharan Africa, where there’s less competition, in part because of exclusivity agreements Western Union and MoneyGram negotiate with their local agents. The UN’s Sustainable Development Goals include reducing fees worldwide to 3 percent. “I think the technology is there to push remittance costs to zero right away,” says Dilip Ratha, a World Bank economist and a leading scholar of remittances.
As the CEO of a company that relied on the telegraph well into the 20th century, Ersek must know how unforgiving obsolescence can be, and he has made it his mission to get with the times. In 2011, Western Union opened a San Francisco office under Khalid Fellahi, a Moroccan-born engineer who previously oversaw Africa operations. Fellahi’s development and marketing efforts have helped increase the company’s digital business 24 percent a year. “Eighty percent of those customers are brand-new to the franchise,” he says. He himself is among the Western Union app’s heaviest users, sending money to his sister in Belgium, his children at schools in Canada and the U.K., and his father’s driver in Morocco, who deals only in wads of dirhams.
The company has formed partnerships with the social messaging apps Viber and WeChat, and in April it rolled out a chatbot that allows people to send money on Facebook Messenger. Western Union’s software engineers have also been enlisted to design platforms to help sell Western Union’s cross-border expertise to other companies: small banks that want to offer international transfers, universities that need to process tuition payments from overseas, hospitals treating the growing number of medical tourists traveling abroad for better or cheaper care. The company even ran a bitcoin pilot program last year, though it has no immediate plans to offer cryptocurrency as a payment option.
Over the past few years, however, Western Union’s most ambitious tech project has been vetting the almost 3 million transactions flowing along its rails each day. Transfers and payments run through big-data analytics platforms that not only verify clients’ names but also identify potential networks and behavioral patterns. The company is leery about offering specifics. At a counterterrorism conference in November, however, a senior manager outlined something called the Western Union Countering Terrorist Financing Program. It includes “typologies,” based on proprietary algorithms, that the company uses to pick out transactions indicating narcotics trafficking, child exploitation, or terrorism.
Determined to put its legal troubles behind it, Western Union since 2013 has quadrupled its compliance staff, to 2,400, hiring away top lawyers from the U.S. Treasury Department’s financial intelligence and sanctions enforcement branches. Analysts examine transactions the software has flagged as suspicious and hunt through the dark web to gain insight into the tactics scam artists and terrorist financiers might use to evade detection.
The specter of terrorism funding, in particular, has driven a proliferation of financial regulations since Sept. 11—an attack partly funded using Western Union money transfers—and the company is keen to stay ahead of them. The typologies for Islamic State foreign fighters described in the Countering Terrorist Financing Program presentation, for example, might lead someone in the European Union to be flagged for sending money to “multiple corridors of interest” or for conducting a transaction in a European country, then in Syria, then again in Europe. Another warning sign is a single person in a conflict zone receiving money from many senders. Western Union analysts can then search past transactions and social media profiles for corroborating evidence.
The financial networks the company identifies are monitored and eagerly shared with law enforcement. “There’s no question Western Union has taken compliance more seriously and devoted more resources and attention to it over the past few years,” says Juan Zarate, a former senior White House and Treasury official. A tip from Western Union about a customer dealing in counterfeit Chinese Nikes helped French police investigate the cell behind the 2015 mass murder at the Charlie Hebdo offices in Paris.
The company talks about its compliance efforts—its analysts, proprietary software, and intimate knowledge of the financial regulations governing thousands of different corridors—as a bulwark against disruption. “Strong compliance is a competitive advantage,” Ersek says. “Strong anti-money-laundering is a competitive advantage.” And the more costly and complex financial regulations become—the more arbitrary, even—the greater that advantage. “One of the most protective countries, China, we have a very successful business there,” he says.
As banks have shed risky customers because of tightening anti-money-laundering regulations, Ersek has kept going after them. Under general U.S. Treasury Department licenses and exemptions, the company has remained in business in Sudan and Syria, both of which are sanctioned by the U.S. as state sponsors of terrorism. Asked about Syria, Jacqueline Molnar, Western Union’s chief compliance officer, says she’s constantly gauging where the company can continue to do business. “We will suspend in certain conflict zones, either permanently or temporarily, if the risk is too great, and then allow other areas to transact where we think, for example, it may not be under potential illicit actors’ control,” she says. Pulling out entirely, she argues, removes one of the few financial lifelines ordinary people still have. “In some instances, in those conflict zones, we’re actually allowing NGOs and humanitarian providers to pay their employees or do what they need to do.”
This April, Ratha’s team at the World Bank released its latest report on remittances. The global numbers had declined for the second year in a row, something that hadn’t happened in three decades. The report blamed the drop on regional factors—slow economic growth in the sender nations of Europe, low oil prices hitting the Gulf countries, the weakness of the euro against the dollar—and predicted growth would resume. In a later phone conversation, Ratha offers a more cautious prognosis. He cites the rise in “anti-migration sentiment” in several places: the U.S., but also Europe, India, the Persian Gulf, Russia, Singapore, and South Africa. “I mean, it is literally all over the place,” he says. He describes two possible implications. First, the flows of people into those countries might be drastically lowered, perhaps by walls. Second, people might turn to informal channels to send money home, especially if there’s talk of taxing remittances.
Both would be bad for Western Union. To protect its business and burnish its progressive image, the company has in the past advocated on behalf of immigrants. In 2004, First Data formed a political action committee to try to defeat Republican Tom Tancredo, a fierce and theatrical immigration hard-liner who represented the Colorado congressional district where Western Union is based. He won reelection and continued to criticize the company for aiding undocumented immigrants until his retirement in 2009.
Today, Ersek takes a less partisan tack. Western Union lobbies in a general way on immigration issues and funds research that tends to highlight the economic benefits of migration for sender and receiver countries. “We are obviously talking with regulatory and Senate people and with the White House,” he says. He’s also a regular at conferences and forums where the case for globalization is preached: “I’m talking at Davos constantly.”
If it’s easy to be cynical about the value of speaking at the World Economic Forum, it’s harder to doubt Ersek’s devotion to that gathering’s ideal of benevolent globalist capitalism. With his half-Indian, half-Austrian wife, he celebrates Christian, Hindu, and Muslim holidays at home. His colleague Sigliano recalls his putting on a juggling show for a crowd of children during a visit to a makeshift refugee camp near the Greek port of Piraeus. In the fall of 2015 he went to Nickelsdorf, an Austrian town on the border with Hungary. He was with his Chilean sister-in-law, a doctor who’d fled to Austria during Augusto Pinochet’s regime. She set up a white tent, and Ersek helped her hand out aspirin and antibiotics to the people flooding through.
Since early last year, when the EU reached a deal with Turkey to house the bulk of the Syrian refugees, that tide has slowed. If and when the fighting stops, Western Union will already be in Syria. “I’ve seen many wars in my 17 years here,” Ersek says. “When wars end, money flows.”