Western Union is in the process of acquiring Travelex Global Business Payments, the spun-out B2B unit of foreign exchange specialist Travelex. Plans to challenge the SWIFT network should benefit from the extra investment, writes Louise Naughton, but it can be difficult to remain focused and grow at the same time.


Photograph of Neil Graham, TGBP UKThe global recession that shook the financial world in 2008 compelled foreign currency specialist Travelex’s business payments unit to quickly rethink its strategy.

In order to grow and develop the company would have to move into unchartered territories.

While this would be a daunting prospect for most businesses, for one with the strong brand and global reach of Travelex Global Business Payments (TGBP) the stakes were high.

However, its new direction has generated more excitement and success than the industry could have predicted.

TGBP was spawned out of humble beginnings from its parent company Travelex in 1993, when founder Lloyd Dorfman had a ‘lightbulb’ moment in realising that businesses have the same problem of exchanging foreign currency that individuals do.

Banks were, and still are, the default method for banks to transact overseas, but it became apparent that an alternative specialist service was attractive to those small and mid-size companies that perhaps did not have enough clout to get the best services at the best rate from their bank.

SMEs remain at the heart of TGBP’s organisation and processes. Some might say this has been out of necessity, as the company has found it difficult to break into large enterprise businesses due to a lot of those organisations already having very sophisticated treasury and enterprise resource planning functions in place.


GEO network

Table showing Travelex Global Business Payments' vital statisticsTGBP is aiming to eat into SWIFT’s share of the international payments market with its competitively positioned GEO network.

“The difficulty with SWIFT is, because it is a collaboration effort and not a commercial organisation as such, there has been very little development of the network in the past 10 years,” says Neil Graham, TGBP’s managing director in the UK.

“The amount of information about a payment you can transmit through the SWIFT network is quite limited.”

When making a payment, most buyers would like the option to inform their suppliers what goods they are paying for, as it may differ from the amount on the invoice.

The SWIFT network only allows users a very small number of characters to get that information across and it remained “baffling” to Graham as to why these “archaic” technology limitations hadn’t already been broken down.

GEO provides an alternative to SWIFT and claims to rid users of such limitations. In carrying out international payments through the network, the company has to manage a book transaction in the banking end, claiming this allows complete visibility over the payment transaction from start to finish.

The biggest challenge with getting the GEO network off the ground, it seems, is convincing businesses that there is the possibility of a SWIFT alternative in the first place.

“There is almost a lack of belief or an amount of disbelief that there is an alternative way [to transfer money internationally],” says Graham.

“We spend a lot of our time educating clients that it is possible and that we can manage their international payments just as well as SWIFT, if not better.

“We think there is some thought leadership in this, not just because we are the first to think of an alternative but with the global reach we have, we are one of the very few organisations who actually has the ability to deliver on it.”


Know your client

Table showing Travelex Global Business Payments' profit and loss account 2010In a further bid to differentiate the GEO network from SWIFT, TGBP enters into a ‘discovery process’ with prospective clients to tease out where they are making payments as “all payments are not made equal”.

Graham gives the example of sending a parcel to highlight the different types of payments. If a person wants a parcel to be sent in a quicker fashion than is standard, a higher fee is incurred.

This does happen in payments today. A BACS payment is seen as the ‘standard’ method and a CHAPS payment is the mechanism used to get a payment delivered as close to instantaneously as possible and as such is more expensive than the former. However, a CHAPS payment is usually initiated in an ad hoc, reactive way.

It is claimed TGBP’s discovery process educates clients that there are different ways and means and mechanisms and pricings associated with the different types of payments in a particular business. This allows businesses to be more sophisticated and proactive when conducting international payments.

“This service is not cheaper, better, faster but the right price at the right time,” says Graham.


Broadening scope

Graham says, while the company’s traditional focus was the importing and exporting industries, the market has become commoditised in terms of its payment needs.

This is thanks to the level of competition from banks and non-banks. As such, TGBP has begun to look into other vertical industries with more specific payment needs.

One such vertical is that of higher education.

Traditionally, students would pay for their tuition fees by cheque and the university would have to convert it into its home currency – a process that would typically take four-to-six weeks.

In 2010, TGBP created a solution to allow students to pay online via credit or debit cards and engage in ‘dynamic currency conversion’.

TGBP now works with over 300 universities worldwide – 60% of the UK universities in the Times Higher Education’s World University Ranking, including the Oxford, Cambridge and London School of Economics.

TGBP works alongside the universities of Melbourne and Sydney in Australia, two of the top three universities in the US, four of the top 10 universities in Canada and a leading university in France.

There has been a 250% increase in revenue in this particular line since inception.

Payroll and pension payments is another vertical that has proven successful since TGBP aggressively broke into the area at the beginning of 2010.

The company has also taken a leap from going direct to corporates to ask about such payments to going direct to speaking with the aggregators of payroll payments. The TGBP solution aims to give organisations the ability to carry out both domestic and international payroll payments.

These payments are time-sensitive and not-rate sensitive so no matter what the currency markets are doing, in terms of volatility, companies will require it to be made on the same day every month. “This is good business for us,” says Graham.

He claims TGBP is leading the charge in international payroll payments in the UK and plans to export the solution to the US next year.


Western Union acquisition

Box showing Western Union's Q211 resultsWhile TGBP has been busy expanding its operations, Western Union announced in July this year it is set to acquire the unit for £606m ($986.5m).

Western Union has said it will invest in TGBP, and facilitate growth on the consumer orientated side of Travelex’s business. The same will hopefully be seen on the business payments side under Western Union – and the $70m set aside for the integration is a step in the right direction.

“We are really encouraged by the fact Western Union has set aside investment funds,” says Graham.

“This shows it is serious about the partnership and bodes very well for us.”

The transaction is said to have come at the right time at the right price and Graham has no fears it will halt or slow down TGBP’s progress that has been made over the last two years. Rather, he believes, it will serve to accelerate this progression.

Western Union’s complimentary operations and network in the upper SME and corporate market is seen as a reason as to why the partnership will prosper.

The change that faces TGBP, while exciting, casts doubt over whether the company will be able to cope with the variety of opportunities it has presented itself with.

This is something Graham has already flagged up with his team and claims maintaining focus will be of utmost concern moving forward.

“It is difficult to maintain focus when you are trying to grow because it is easy to go after different opportunities,” says Graham.

“We have got to ensure we consolidate the start we have made in these new verticals and industries, while continuing to grow in our traditional space.

“It will be a balancing act.”