TIME WAS WHEN HAWALA (HINDI FOR IN trust) route was most frequently opted way to send money home from abroad. The remitter would approach a thakedar of one hawala who would contact his counterpart in the other location. The originating thakedar then gets a response from the recipient thakedar, confirming that there is enough cash on hand to complete the transfer. To verify the transaction, the donor, recipient and the two thakedars would share a password. The transaction was based primarily on trust, with details not being relegated to paper. According to industry estimates, hawala still accounts for atleast $15 billion of the global remittances.

Then came paper-based money transfer, where the remitter would courier or post a check drawn out to the local currency (say U.S. dollars). The check would make its way to the destination bank, which would then send it back to the originating bank for verification and clearance. The whole process would sometimes take as much as three months.

Now, giants like Western Union are reaping the benefits of an extended retail chain with 160,000 outlets, and myriad companies are hoping to shake up the whole remittance market by taking money transfers to the next frontier: the Internet. And foremost among them is the Sunnyvale, CA-based Xoom. Xoom founder and chief executive officer Kevin E. Hartz is taking on rivals like Western Union and the India-based ICICI Bank by simplifying the process of transferring money. And making money by helping other people send their money.

But how does Hartz hope to make money in the fractious money transfer business? He is hoping that internet savvy Indians in the U.S. will see the efficiency in his online to offline product rather than the traditional wire transfer that is currently popular among people in the U.S. and U.K.

Xooming to India
“There is a higher percentage of Indians (in the U.S.) online at any given moment than the general population,” claims Hartz. “The demographics of the population suggests that this is an audience that is looking for a faster, more secure way to send money home and is not resistant to newer technology,” he says.

Before he introduced the service to India, however, Hartz tested it out in the Dominican Republic and Jamaica. “We decided that we would test run the service before introducing it to India, to iron out any glitches in the transaction process.” As it turned out, the tests ran fine and Hartz decided to tie up with money transfer veteran Wall Street Instant Cash, a remittance company held by the U.S. $2 billion Patel Group, for the offline part of the transaction.

The operational part of a transaction through Xoom is simple. A potential remitter logs on to xoom.com and enters the remitter and recipient details. Once the transaction is completed the Wall Street Instant Cash outlet in India receives the money and routes it to the recipient.

One of the biggest hurdles Hartz knew he would face was convincing people about the security of the transaction process. To that end he inked a pact with the secure payment leader PayPal to ensure infallibility of the transaction process.

However, convincing people of the efficacy of his product is one thing. Weaning them away from Western Union—which has almost become a habit for Indians wanting to transfer money—is quite another. So how does a 3-year-old company compete with a 100-odd years old behemoth that is already synonymous with money transfers the world over?

Pushing The Right Buttons
Like all good businessmen, Hartz understands the advantages in undercutting rivals. He quotes service charges that are fully half of what rival and industry major Western Union charges for a transaction of similar size (see box). Admittedly, First Data Corp subsidiary Western Union holds an enviable first mover advantage in an increasingly fragmented business environment. With some 160,000 retail outlets, Western Union’s reach across the globe is unparalleled in this business. But Hartz aims to negate that advantage by going local.

“The element to beat really is their tremendous reach. But with Wall Street Instant Cash, we already have a 400-location footprint across India. By end 2004 that will be 1000 locations in India,” says Hartz.

Concentrating only on India, Hartz reckons, is more than justified. And the statistics bear him out. 22 million Indians settled around the world pump in money at an average of $16 billion per year into India. And despite the sharp drop in immigration from the boom days of the 90s, remittance volumes are still expected to grow at 7% per year.

Future Plans
The current online to offline service is only the first step in Hartz’s scheme. By January 2004, he also intends to make instant delivery of cash anywhere in India through a check possible. Also in the works is an instrument to remit money directly into a recipient’s bank, thus making the process truly online.

Hartz has recognized that he needs to keep adding to his bouquet of services in order to become the market leader. “This product is what the market really needs right now. However, we will continue to focus on enhancing this product and grouping more services around it,” he says.

Indeed, this will determine whether Xoom will have to perennially play catch up to Western Union or become a market leader in itself.