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MoneyGram (MGI) to Expand in Canada Via Flat-Fee Pricing

Zacks Equity Research

MoneyGram International, Inc. MGI along with Canada Post has launched a low cost money remittance service in Canada.

Per this service, any transaction of up to $500 will cost $10 to send from anywhere in Canada to anywhere around the world. This easy and simple pricing structure is expected to increase customers’ loyalty and draw new consumers for MoneyGram in Canada.

MoneyGram is eying Canada, since demand for money-remittance services is high in this region, given its large immigrant community, which consists almost 22% of the population. In fact, in some of the major metropolitan areas like Vancouver and Toronto, almost 50% of the total population is immigrants, who need to transfer money back to their homes.

Money remittance in Canada has mostly been a cash-based business, carried on via many store-front money transfer companies, thus leaving significant room for the growth of online money remittance. Immigrants have to shell out high cost to avail money remittance services and send money back home. The lack of online money remittance services is attracting new players to the industry, which is worth nearly $25 billion per year. Nearly eight million people in Canada require such services.

Sensing this opportunity, Xoom, a subsidiary of PayPal Holdings, Inc. PYPL, introduced cheaper, quicker and more secure money transfer services last year. Western Union Co. WU also offers money remittance services in Canada.

MoneyGram has a 15-year old relationship with Canada Post. Earlier this month, the company announced a new digital money transfer service with Canada Post, enabling consumers to start a transaction online and conveniently complete it at select Canada Post locations.

MoneyGram has been making a number of deals, tie-ups and investments in technology, in an effort to boost its top line. The company’s revenues have been declining from the past two years and continued to slide in the first quarter of 2019.  Increasing competition in the U.S market and tighter restrictions in corridors such as Nigeria and the United States has brought the revenues under pressure. Revenue growth outlook remains dampened this year with the company expecting full-year 2019 revenues to decline approximately 2-4%.

In a year’s time, the stock has declined 65%, compared with its industry’s rise of 0.3%.

Though MoneyGram is developing and expanding its business via different strategies to stay ahead in the rapidly changing money transfer industry, it will incur substantial costs. In contrast, newer fintech players with cutting edge technology will stay ahead in the competition, thus leaving a gap for MoneyGram to catch up.

MoneyGram, with a Zacks Rank #4 (Sell), has witnessed a downward revision for 2019 earnings estimate by 59% in past 60 days. The same for 2020 is down by 45%.  

A better-ranked stock in the same space is Square Inc. SQ. The stock  with a Zacks Ranked #2 (Buy) has surpassed earnings estimate in each of the four reported quarters by 20.4%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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