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World’s leading money transfer company, Western Union Co. (WU - Analyst Report), has announced the launch of the Mobile Money service in Uganda following an agreement with the MTN Group.

Via the Mobile Money service, MTN customers will be able to transfer funds across the borders through their mobile phones.

About 2 million of MTN customers in Uganda will now be able to deposit funds to their accounts, sent through Western Union money transfer system. The receiver of the funds will simply have to “pull” the transaction into their respective MTN Mobile Money account.

The new service also ensures that MTN customers can transfer funds internationally through Western Union, using their Mobile Money accounts. The cash payout can be collected from any of the Western Union Agent locations across the world. MTN customers can also transfer money to subscribers of certain mobile phone companies, which have a tie up with Western Union.

As part of an aggressive marketing campaign, both the companies will offer 9000 “Yellow Phones” to Ugandans over the next few months. Customers receiving these phones should have an active MTN service account in order to avail the remittance services. In case, they do not have an account they need to sign up first.

Western Union is particularly eyeing the market in Uganda as the area is underserved and has an underdeveloped financial infrastructure. Mobile money services can address the gap by providing basic financial services to the areas that are not served by banks.

Moreover, MTN is one of the successful mobile operators in the country which launched Mobile Money in March 2009. It has around 1 million customers using the Mobile Money service and is expected to see more customer using the service over time. As of January 2012, Uganda’s mobile money market has expanded to an estimated 1.5 million users. 

On the other hand, Western Union is also embracing the use of new age technology for serving its customers. Mobile payments are gaining momentum owing to their convenience and round the clock accessibility. This channel will see faster adoption rate than any other electronic channel.

As of December 31, 2011, there were over 150,000 Western Union agent locations enabled with the technology to transfer money through a mobile phone. Although mobile transfer contributes a small portion to the company’s revenues, Western Union is witnessing strong growth in some corridors, such as the U.K – Kenya and U.S – Kenya corridors.

In fact, over 30% of U.K.– Kenya transactions are now carried over through mobile phones. Also, the company’s mobile applications for the iPhone and Android are gaining traction as access points to westernunion.com.

The company competes closely with Moneygram International, Inc. (MGI - Analyst Report).  Western Unioncurrently retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Neutral” recommendation on its shares.

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