Western Union’s Telegram to Silicon Valley: We’re Ready to Compete

8/20/12Follow @wroush

Western Union built the first transcontinental telegraph line in 1861, offered the first telegraphic money transfer service in 1871, and became one of the first 11 stocks in the Dow Jones average in 1884. It invented the charge card in 1914, and launched the first fleet of commercial geosynchronous communication satellites in 1974.

In other words, Western Union is so old that it has participated in half a dozen major technological revolutions, from telegraphy to telephony to computers to the Internet to wirelessness. It’s also outlived almost every other company in its original mid-nineteenth-century cohort (San Francisco-based Wells Fargo is an exception).

So what is this relic of the Victorian era doing opening an office in San Francisco’s SoMa district, where the average company is still young enough to be wearing diapers? That’s what I’ve been wondering lately on my daily runs past the China Basin office building on Mission Creek, where construction crews have gradually been transforming Western Union’s first-floor space from an empty shell into a startuppy wonderland full of art, murals, and slick modular furniture.

A couple of weeks ago I got a chance to put my question to the executive in charge of the operation, Khalid Fellahi. The short answer is that Western Union is intent on being a leading player in the next era of digital cash and payments technology. The San Francisco office is the headquarters of Western Union Digital Ventures, or WU Digital for short; it’s a brand new division of the Englewood, CO-based company charged with reinventing and expanding Western Union’s legacy money transfer business for the mobile age.

Khalid Fellahi, senior vice president and general manager at Western Union Digital Ventures

It’s hard to fathom the size of the money transfer market. Some $400 billion of principal changes hands every year, mostly in the form of consumer-to-consumer remittances sent home to families by workers living abroad, and Western Union handles about a sixth of that, more than any rival.

Many of those transactions still begin and end in the form of cash, but digital transfers—those between credit-card or bank accounts in the 24 countries where Western Union has a Web presence—generate a growing percentage of the company’s revenue. Fellahi, the general manager of WU Digital, says his goal is to increase digital revenue from $100 million today to a minimum of $500 million by 2015.

To achieve that kind of growth, Western Union will have to stay ahead of upstarts like Xoom who want to wrest away more of the money-transfer market. And it will also need to position itself for a future where cash may gradually be displaced by an array of online, mobile, and “e-wallet” technologies from companies like PayPal, Google, and Square. That’s why the company decided to put WU Digital in San Francisco, where it will have an easier time keeping tabs on the competition and attracting talent, Fellahi says.

“We have to be much more nimble, much faster, up to Internet speed,” Fellahi says. “So we built a completely different structure here to make sure we were on a par with, or beyond, what our competition is doing in this space.”

The atmosphere at WU Digital was subdued the day I visited, but it was probably the quiet before the storm: so far there are only 40 people working in a space built to house more than 100. The company has dozens of open positions, and has been able to recruit employees away from some of the Bay Area’s hottest companies, including Google and PayPal, Fellahi says.

“We are looking at a very fast ramp-up,” he says. “We have marketing and business people sitting in Vienna and London and Australia and Singapore, but this is the design and innovation center. What we are trying to get here is the key talent that is going to be … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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