MGI/ANT Deal Fails, M&As Shape Up in Remittance Space
The beginning of 2018 has been eventful for the remittance industry, which saw the termination of the mega merger between MoneyGram International Inc. MGI and Ant Financial Services Group, formerly known as Alipay, an affiliate company of the Chinese Alibaba Group Holding Ltd. BABA
The deal met a dead end after it was shown a red flag by the Committee on Foreign Investment in the United States (“CFIUS”), which was concerned about the security of the personal data of U.S citizens, who are using MoneyGram’s services. Otherwise, it would have lead to expansion in the size and scale of the company, thereby enabling MoneyGram to provide a stiff competition to Western Union Co. WU.
These two are pureplay money remittance companies. A number of other players PayPal Holdings, Inc. PYPL, Euronet Worldwide, Inc. EEFT having money transfer being as one among their other businesses have also entered the industry.
Notably, this market concentration has been continuing for many years due to increased consolidation. One of the significant deal was the acquisition of Xoom by PayPal, which signaled players entering the industry to reap large untapped opportunities. PayPal, primarily operating via its digital platform also brought new challenges for the traditional brick and mortar players to invest in technology.
Some other deals were also inked to enlarge the players business, in an effort to diversify from money transfer business to provide a bouquet of money management services.
Competition May Lead to Mergers & Acquisitions
We expect to see more consolidations as players diversify business to counter the increased competition. In fact, the companies in this remittance space are aiming to reach out faster to customers and cater to new markets, which are expected to fuel mergers and acquisitions (M&A). Generally, players respond to competition by making price modifications and introductions of products and services or by expanding geographically. But acquiring a best company is another most sought-after method to gain a foothold in the industry amid competition.
After the failure of the merger between Moneygram and Ant Financial, the industry participants are very closely anticipating the former’s tie-up with Euronet. Earlier, Euronet had failed to woo MoneyGram as Ant Financial’s bid was comparatively more attractive.
If the Moneygram-Euronet merger takes place it would make the market further concentrated by wiping out a major player.
Techological Innovation to Trigger Consolidations
Proliferation of technology in everyday lives has also influenced the way money is being transferred around the world. Currently, customers demand for safe secure, flexible, fast, easy ways of transferring money to their relatives around the world can be met only by digital transfers.
This changing need has compelled even traditional players like Western Union, MoneyGram to invest millions of dollars for building up technical platform to offer electronic money transfer services to keep their customer in loop. Another faster way of catching up on the digital revolution is to tap a player essentially proficient in electronic money transfer.
Share Price Performance
The industry has rallied 34% in a year’s time, significantly outperforming the S&P 500 gain of 20%.
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Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
Moneygram International, Inc. (MGI) : Free Stock Analysis Report
Euronet Worldwide, Inc. (EEFT) : Free Stock Analysis Report
Western Union Company (The) (WU) : Free Stock Analysis Report
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