Western Union

Western Union CEO: What digital currencies are missing

March 18, 2014: 10:21 AM ET

They could take off in developed countries first, but a lot of issues need to be addressed before they go mainstream in underdeveloped nations.

By Hikmet Ersek

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FORTUNE -- Read any good articles about digital currencies lately?

It seems that not a day goes by without at least one major publication citing developments in the digital currency market, and the presumed potential of the technology to disrupt the payments space.

As CEO of Western Union (WU), I've been asked in various public forums about my position on digital currencies and cross-border payments. While I've touched on the subject, in this three-part series for Fortune.com, I intend to address several items that will play a role in the evolution of digital currencies, particularly as it relates to our business.

The current digital currency narrative, while certainly attractive to entrepreneurs, venture capital, and the media, is extremely "First World" in nature. And a primary question remains -- do such innovations, as we know them today, address the needs of consumers and businesses on both sides of an international transaction? In its current form, the answer is no, but there's potential, and that is something I am watching with great interest.

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For every international payment, there is a sender and a receiver. Whether it's a customer moving money to family members in another country; a business looking for solutions to pay invoices in different currencies while managing foreign-exchange risks; or a non-governmental organization trying to get money into the hands of those who need it most after a disaster, each has their own requirements.

Up to this point, the digital currency conversation has not addressed the practicalities on the receive-side. Will the person receiving digital currency in a rural village in the Philippines be able to use it? Will the small or medium-sized enterprise have the technology capacity to spend, or transfer it? And most importantly, does the receive-side consumer or business actually want digital currency -- if given the choice, would they prefer cash, or want the money in their bank accounts?

Furthermore, the transfer of funds is an emotional transaction, and when you are dealing with payments of any kind, trust is a major factor. While digital currency has potential to enhance customer and business trust, several recent events within the space underscore the early-stage development of the technology. Without continued enhancements to ensure consumer protection, which ultimately translates to increased reliability, I believe consumers and businesses will continue to gravitate to cash, bank accounts, and cards.

What I often hear about digital currencies is the power of technology to transform business models and bring more people into the global financial system. And I certainly do not dispute the notion that technology can be a force for good.

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However, if there is significant consumer adoption of digital currencies, I think it is likely to occur first in the developed world as a business payments vehicle. If and when it is regulated and used for remittances, a need will arise to transfer digital currency across borders, and pay out in cash, or into accounts maintained in regulated currency by the receiver.

Consumer adoption is just one part of the digital currency story. Regulation and compliance issues also need to be addressed, and much work remains to be done in this regard. The conversation continues to evolve on a daily basis, and it may be a case of two steps forward, one step back, before we see formal regulation in place. But in the end, this is a path digital currencies must walk, before they can arrive, at scale, within the global payments business.

Hikmet Ersek is CEO of Western Union.

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