Wal-Mart Robs MoneyGram, Western Union’s Money Transfer Service
Ouch. MoneyGram International (NASDAQ:MGI) and Western Union (NYSE:WU) just got hip-checked by Wal-Mart (NYSE:WMT). The retail giant announced this week that it will begin offering lower-cost money transfers in the U.S. under its own brand, and after that disclosure, shares of MoneyGram and Western Union took a tumble. According to The Wall Street Journal, MoneyGram currently provides the money transferring service for Wal-Mart — that’s why its shares dropped 11 percent, to $16.04, in early trading on Thursday.
Shares of Western Union took a hit, too, its stock falling 5 percent, to $15.21. While MoneyGram counts on U.S.-to-U.S. transfers for 30 percent of its total transfer transactions, the Journal reports that 85 percent of Western Union’s consumer transactions involve at least one location outside the U.S., but with both cases, the parties counted on Wal-Mart’s business to sustain their services.
Wal-Mart’s new service will be called Walmart-2-Walmart. The Wall Street Journal said Thursday that the retailer will offer transfers up to $50 for $4.50 and up to $900 for $9.50. Those price points make Wal-Mart the new cheapest option in the game, as most competitors charge up to $76 for an $800-$900 transfer. The biggest market for money transfers is made up of lower-income shoppers who are typically bankless, and luckily for Wal-Mart, that’s its main consumer base.
Thus, Wal-Mart already understands the marketing strategies that are effective with these customers, and it is expected to take advantage of its knowledge about the consumer base. As highlighted by the Journal, people in the military and oil field workers are also big money transfer customers, so Wal-Mart will hope to win over these transactions, as well.
But even though MoneyGram and Western Union may take a big hit from Wal-Mart’s latest announcement, their businesses still offer some services that Wal-Mart can’t provide. For example, Walmart-2-Walmart is U.S. only, and it caps how much money someone can send, so if consumers are looking for international money transfers or transfers involving large sums, they will need to visit MoneyGram, which doesn’t have a cap and will facilitate international transfers.
As such, Wal-Mart executives didn’t show very much remorse over the prospect of adjusting the relationships it currently fosters with its long-term partners, as according to The Wall Street Journal. Daniel Eckert, senior vice president of services for Wal-Mart U.S., said on a conference call this week: “MoneyGram continues to be a very valuable partner for us and our customers. We saw an opportunity to provide a simple and straightforward capability.”
It shouldn’t come as much of a surprise to consumers that Wal-Mart is, once again, jumping headfirst into a new market, as the retail giant has been known to partner with niche businesses, help them stay above water, and then ultimately sink them. Especially now that big box retailers are struggling and Wal-Mart is facing more and more competition from rivals like Amazon.com (NASDAQ:AMZN) and Target (NYSE:TGT), the Bentonville, Arkansas-based company has worked to flex its muscle in new markets and realize profits where it can. Its current pattern of quarter after quarter of disappointing earnings isn’t impressing investors, and Wal-Mart needs to make changes fast.
The Wall Street Journal reports that Wal-Mart’s latest dive into more foreign waters came this week, when the company struck a deal with Wild Oats to sell products under that label at lower prices, subsequently spearheading an organic food market price war. If Wal-Mart’s relationship with MoneyGram and Western Union is any indication, Wild Oats should watch its back, because the retailer has been known to foster symbiotic relationships and then all too quickly cut them.