The Fastest Way To Make Money

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Western Union has fought back by slashing its fees from $30 to $15 to send as much as $200 from the U.S. to Mexico. The company also introduced alternative delivery options in Mexico that cost less (and take longer), including $10 home-delivery service in which a messenger brings cash to the recipient's door. These changes helped reverse a brief decline in transaction growth south of the border, with Mexico accounting for about 5% of Western Union's revenues. But more drastic price cuts may be required now that a binational clearinghouse, announced in June, will allow U.S. banks to send funds to their Mexican counterparts for about 60¢ per transaction.

This move could hasten Western Union's foray into the fledgling ATM-based money-transfer market. Its parent, First Data, is in the process of buying Concord EFS, based in Memphis, Tenn., which owns the STAR, MAC and Cash Station ATM networks, to become one of the world's biggest ATM owners.

Citigroup, which in the late '80s launched a Western Union clone that tanked within two years, is probably the best positioned of the banks that are competing with Western Union. Citi bought Banamex, Mexico's second largest bank, in 2001 and has a strong banking presence in India, where the company is the largest credit-card issuer. "But at this point it's still the elephant and the flea," says David Robertson, publisher of the Nilson Report. By year's end, Western Union will have set up shop in 15,000 India Post offices.

For now, Western Union has only one truly global competitor, which is stuck playing David to its Goliath. MoneyGram was founded in 1988, back when Western Union was spiraling toward bankruptcy. The industry leader had made a bad bet on its Telex division, which was obliterated by the sudden rise of the fax machine. But MoneyGram was dumped for antitrust reasons in 1996 after its parent company, First Data, picked up the much larger and better known Western Union, which had filed for Chapter 11 in 1993.

Now a subsidiary of Viad, based in Phoenix, MoneyGram has more than doubled its global agent base, from 25,000 to 60,000, within the past three years. MoneyGram also scored a few big wins last year, including deals to place its outlets in Wal-Mart stores and Canada Post offices. "We're trying to be nimble and move quickly," says Phil Milne, who heads the money-transfer company, based in Minneapolis. MoneyGram generally charges lower transaction fees and offers a better exchange rate than Western Union. But Western Union, having partnered with national post offices in some 25 countries, including a recent double whammy in India and China, has a reach that is unsurpassed.

For all their recent successes, Western Union execs seldom forget the firm's Telex debacle, and some remember a much earlier — and bigger — mistake. In 1876 Western Union had the option to buy Alexander Graham Bell's new telephone but dismissed it in an internal memo as a device that "is inherently of no value to us." Bell sold the rights to what is now AT&T. First Data's pending purchase of ATM powerhouse Concord EFS shows that it is determined that Western Union won't get left behind this time.