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Western Union on Your Cell Phone?


Pilot program allows money transfers on handsets.

Use of cell phones may expand the reach of money transfers, pumping new profits into an old industry.

Vodafone Group (VOD) and Western Union (WU) plan a partnership to serve the growing market for sending money across international borders by guest workers.

A pilot program in the United Kingdom will allow residents of Reading to send money to Kenya, where Vodafone holds a 40% stake in wireless company Safaricom, the Wall Street Journal reports.

The sector is now small, but use of cell phones to transfer money has caught the attention of Citigroup (C) and Visa (V). Obopay, a Silicon Valley startup, allows users to create an online account and transfer money via text message, Web browser or specialized software downloaded to the phone. The money can be withdrawn from a cell phone account with proprietary Obopay debit cards at ATMs. Citi is testing a new service with Obopay that allows users to link existing bank accounts to their cell phones.

Cell-phone companies see the new service as a way to build more profitable services in markets where many users now buy little more than prepaid minutes.

The cross-border money transfer market is expected to grow to about $465 billion by 2010 from $369 billion last year. However, the growth rate may slow due to the worldwide economic slowdown.

Expanding the service through Western Union is likely to allow Vodafone to increase volume and move into higher-margin markets. Money transfers to Kenya cost 18 cents, but the charge for transferring 100 pounds, or about $149, from the United Kingdom to developed nations would be $7.22 - and that could quickly develop into a profitable business.

A similar program has been established in the Philippines that allows Filipinos working abroad to send money home via cell phone at fees below traditional money-transfer companies. The potential market includes about 8 million Filipinos working abroad who last year sent home about $7.6 billion.

Cell phones won't replace ATMs for those who want to use cash, but are quickly becoming electronic wallets for many. In the future, cell phones could be used to store money, pay bills and order merchandise as well as transfer funds.

In Japan, the latest generation of cell phones includes a chip that can be loaded with electronic cash up to 50,000 yen, or about $450. The phone can be used like a debit card in stores, restaurants, theaters, vending machines, commuter trains - you name it. The purchase appears on a special display when the user waves the phone in front of a scanner and the amount is deducted from the chip embedded in the phone.

Similar services could help millions who don't have bank accounts and generate additional fees for the carriers and transfer agents. Security will be a continuing issue, but the real problem may be more basic: lost cell phones.

So far, technology has yet to curtail carelessness or help the chronically scatter-brained.
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