As good as its compliance systems are, however, they're not perfect. And regulations around the world are changing all the time. State and federal agencies, as well as government agencies from other countries, have increased requests for data in recent years as they investigate money laundering and terrorist financing activities. And some provisions in the 2010 Dodd-Frank Act are affecting Western Union's money transfers to Mexico and Latin America. Compliance costs money.
To meet regulatory deadlines, Western Union has to add staff to manually carry out verifications while IT works on building the new checks into the compliance engine, Thompson says. In all, Western Union spent $100 million in 2012 on anti-money-laundering compliance efforts alone, and Ersek is committed to building "best-in-class" programs in this area.
Meanwhile, the company is still dealing with a 2010 settlement it reached with Arizona and three other states that claimed the company didn't effectively monitor compliance of money transfers in and out of Mexico. The agreement calls for Western Union to improve its compliance programs along the U.S. border, which the company is still working on.
Western Union must heed rulings from a court-appointed monitor overseeing the programs and has spent $71 million on the settlement so far. The company is also the target of an ongoing money-laundering investigation related to the activities of current and former Western Union agents. The company "continues to cooperate fully," according to financial documents. A spokesman declines to comment further.
It's one thing to slice and dice data. But it's another to apply findings in a way that doesn't cannibalize current business but rather moves at the customer's pace, or perhaps just a touch faster, while keeping competitors at bay.
For Western Union to thrive, executives have to be careful not to over-rely on any one asset, says Dave Aron, a Gartner analyst who has studied business model disruption. Like ants at a picnic, competitors are constantly looking for ways to work around obstacles to get to the pie. For example, banks are trying to win over some of Western Union's customer base of unbanked and under-banked consumers by offering reloadable, prepaid cards that work like debit cards. JPMorgan Chase launched one in 2012.
It doesn't help that competitors have some powerful allies. The Federal Reserve and the World Economic Forum, among other entities, want to find ways to draw the unbanked into the mainstream financial system for many reasons.
They want to encourage saving, while a money-transfer company like Western Union doesn't have regulatory approval to offer savings accounts. They also want consumers to have recourse if funds are lost or stolen; with cash, you're out of luck. These organizations see mobile banking as the key. A recent survey by the Fed finds that 63 percent of unbanked and 91 percent of under-banked consumers in the U.S. have a cell phone.
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