Yahoo Inc. (YHOO) hopes to cash in by helping consumers send cash offshore.

Peter Barlas
Investors Business Daily
December 26, 2003

Yahoo Inc. (YHOO) hopes to cash in by helping consumers send cash offshore.

The company this month expanded its online payments service to let consumers in the U.S. send money to people in countries overseas.

The Web portal will compete with banks and other payment transfer services for a piece of the global remittance market.

U.S. consumers send around $50 billion a year to recipients in offshore countries. Banks and other money transfer services collect $5 billion a year in fees by acting as the middleman in these transactions. So says Dickson Chu, general manager of Yahoo PayDirect, the company's online payment service.

And revenue from fund transfer fees is rising up to 25% a year, says Chu.

"If you have a pie that's growing at 20% to 25% a year, there's room for us to get a piece of that," he said. "We recognize this as a very big market."

Yahoo's PayDirect service had been available only in the U.S.

For Non-Credit Card Sales

Consumers use Yahoo PayDirect to send money to anyone. They can use it to buy products online from small merchants that don't accept credit cards.

Yahoo is moving into this market at a time when at least one big player is pulling out. Last month, financial services provider Citigroup Inc.'s (C) Citibank closed its c2it online payment service.

PayPal, the world's largest online payment service, lets consumers send payments to friends and relatives offshore, but only on a limited basis.

The unit of online auctioneer eBay Inc. (EBAY) is focused more on its primary business of helping consumers make purchases from eBay merchants or other small businesses on the Web, says PayPal spokeswoman Amanda Pires.

"The remittance business has been part of PayPal, but not a large part," she said.

PayPal prefers to help consumers pay for products online, instead of trying to crack the remittance market, says Pires. "We don't have any plans to make that a bigger focus," she said.

Though PayPal beat Yahoo to this market, Yahoo is jumping deeper into it. Its PayDirect International program includes several partners. HSBC Group, a financial services company; Traveler's Express Co.'s MoneyGram, a fund transfer company; and eFunds Corp., an electronic payments specialist, all help with most transactions, and all share in the revenue.

Yahoo's service makes senders and recipients sign up and set up accounts with Yahoo, at no charge. Senders then can transfer money online from their PayDirect accounts. Funds for the transfer can come from a sender's bank account or a credit card.

The sender directs the money to the recipient's bank or the local MoneyGram office.

Yahoo's service also requires the use of an electronic ATM card. The card, part of the Yahoo PayDirect International service, is hand delivered to all recipients the first time they use the service, and they use it for subsequent transactions. DHL International Ltd., another Yahoo partner, delivers the ATM card.

Recipients use the card just like a regular ATM card to withdraw the cash sent via PayDirect.

The idea is to be easy for senders and recipients, says Chu.

"You don't have to mail a check," he said. "You don't have to go to a bank to wire money. You don't have to go to a Western Union office. And it's available 24/7."

Free Phone Verification

Yahoo provides, at no extra charge, five minutes of phone service to senders for each transaction. That way, senders can check with recipients to verify a fund transfer.

PayDirect International is available in 182 countries.

In comparison, PayPal offers its payment service in 38 countries, and its remittance service in only 20 of those. Consumers in the other 18 countries can use the transferred funds only to make purchases on eBay and some merchant Web sites.

Yahoo hopes to attract business by charging low fees. It charges senders $5.95 to $8.95 for each transaction, depending on the destination country, says Chu.

There's an additional fee of $1.50 when recipients withdraw the money from a bank using the PayDirect ATM card.

Many banks charge senders $25 to $35 for each wire transfer, Chu says. Recipients pay a fee of $10 to $15 when they collect the transferred funds. "You really are paying twice with a wire transfer," said Chu.

Yahoo could face challenges.

It limits customers to sending no more than $899 for each transaction, and to a maximum of $3,500 over a 30-day period. Rival money transfer services are more flexible.

And while bank ATMs are plentiful in the U.S., they might not be in every country, says Aaron McPherson, an analyst with market tracker Financial Insights.

"You're dealing with a situation to get people to use a card where there might not be any ATMs," he said. "And a lot of ATMs have restrictions about how much money you can take out at one time."

Some analysts say Yahoo could leverage its online payment services into other areas, such as payroll.

SurePayroll Inc. is one of a few firms in the U.S. that lets companies distribute payroll checks to employees online. The four-year-old firm says it has 10,000 U.S. customers.

Cutting checks and handling other payroll services online is a new area for payment processors and a likely opportunity for a company like Yahoo, says Mike Alter, senior vice president of marketing and business development for SurePayroll.

"Yahoo could be a big player for this type of service because they already have so many small businesses as customers," he said.

Yahoo has no such plans, says Chu. "Anything is possible," he said, "but right now our focus is to make this (PayDirect International) program a success."

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