At the end of January, Western Union closed down their telegraph business. But its most important value-added network service, money transfers, continues. Over the course of the technology lifecycle, it earned far more more than the basic service ever did. Shouldn’t mobile operators spend their time trying to make money transfer work rather than messing around with music downloads?

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So, farewell then, Western Union. Of course it’s fun at this time to point out that the management of Western Union turned down what subsequently became the most valuable patent ever: the telephone. In fact, they rather famously said

“The ‘telephone’ has too many short-comings to be seriously considered as a means of communication. The device is inherently of no value to us.”

That’s management for you, you might say. There was no more reason for a telegraph company to catch the telephone wave than there was for Microsoft to invent Google or for BT to come up with Skype. Or, for that matter, for a bank to invent the successor to the payment card.

But were Western Union management crazy? The fact is that on the evidence available to them, they made the right decision for them (but not necessarily for the future management). It took 25 years for the telephone to make any serious dent in their telegraph business, a business that peaked in 1929. In “Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change” (Clayton M. Christensen, Scott D. Anthony, Erik A. Roth) Western Union is used as an interesting case study.

Western Union will always have a special place in the history of Digital Money though. They invented electronic funds transfer in 1871, which is something to be proud of, and in 1914 they gave some of their best customers a charge card for deferring payment (without interest). These became known as “metal money”. I have a suspicion, although a round of googling has failed to either confirm or deny it, that the reason that payment cards are the size and shape they are today can be traced back to those Western Union cards in 1914.

It now appears that FDC is going to sell off its money transfer business, which includes Western Union. This processes 275 million money transfers a year from 271,000 locations in more than 200 countries. Last year this was a $4 billion business with a net income of $1.3 billion, but I guess they’ve seen the writing on the wall. With new e- and m-payment schemes coming along all the time, there is going to be real pressure on the remittances business. Surely Western Union’s management are again making the right decision.

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