MoneyGram International (NASDAQ: MGI) is the world’s second largest money transfer company in terms of infrastructure, with some 380,000 locations in more than 200 countries. Alone Western Union is bigger, although there are many competitors online, like Pay PalʻS Xoom.
MoneyGram has been good for investors for the past two years, returning 160% in 2020 and 43% already in 2021 at Wednesday’s close. But the company bottomed out in 2018 when it fell 84% to around $ 2 per share after years of decline, from $ 250 per share in 2006. The long, steady decline was due to a variety of reasons – the most important which is its inability to put its activity online.
MoneyGram has started to rebound in recent years as it has invested a lot of money in building its digital capabilities. But it suffered a setback this week when a partnership with cryptocurrency firm Ripple was dissolved. What does this mean for MoneyGram?
Ripple in calm water
In 2019, MoneyGram signed a partnership with Ripple, which created the XRP cryptocurrency token. Ripple has invested $ 30 million in MoneyGram to become its partner for the international cross-border exchange of digital assets.
“This is an important step to help transform cross-border payments. MoneyGram is one of the largest money transfer companies in the world and the partnership will continue to expand the reach of Ripple’s network. looking forward to a long term, very strategic partnership between our companies, ”said Brad Garlinghouse, CEO of Ripple, in June 2019.
For MoneyGram, the deal would have allowed it to use XRP for international settlement, better matching the timing of funding with its settlement requirements, thereby reducing costs and increasing free cash flow and profits.
But in December 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, claiming the company had raised more than $ 1.3 billion through the sale of XRP in a bid to unregistered titles.
MoneyGram was not involved in the action. The company released a statement right after the SEC action, saying it “had not been made aware of any negative impact on its trade deal with Ripple, but would continue to monitor any potential impact as it unfolded. as the trial progresses “. MoneyGram said it uses other trading platforms and does not depend on Ripple for its currency trading needs.
Again this week, on March 8, Ripple and MoneyGram officially ended their partnership. So what does this mean for MoneyGram?
The biggest effect will be the loss of the fees paid by Ripple to MoneyGram to use the XRP token for international settlement. In the first quarter of 2020, that translated to $ 12.1 million, and officials say total revenue for the first quarter of this year will be around $ 300 million – more than the same period of 2020 but less than the $ 323 million in the fourth quarter. .
MoneyGram will offset the loss of these Ripple fees with strong growth in its MoneyGram online business through its MoneyGram Online application. In January, MoneyGram saw 137% year-over-year growth in cross-border transactions. It was the 13th consecutive month of triple-digit growth in cross-border transactions year over year.
Overall, transactions on its online app MoneyGram were up 161% year-over-year in January. Digital transactions accounted for 30% of all MoneyGram money transfer transactions in January – a record.
Both MoneyGram and Ripple have left the door open to resuming the relationship in the future, pending an adequate resolution of the SEC lawsuit. But in the meantime, Wall Street has not reacted negatively after the official termination of the Ripple deal. The share price has barely budged and remains up around 43% since the start of the year.
Over the long term, MoneyGram still has significant debt, and its rapid increase over the past two years has caused its stock to be overvalued. But the growth of online trading is promising and it is a stock to keep on your radar.
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