MoneyGram International, Inc. MGI has entered into a pact with Ripple, a provider of leading enterprise blockchain solutions for global payments. The partnership will allow MoneyGram to leverage Ripple’s product named XRapid, in effectuating cross-border payments. The same will be done at lower cost and higher speed by the use of RippleNet—a network of more than 200 banks and payment providers—which makes it easy to connect and transact across the world.
This two-year deal will make Ripple a key partner of MoneyGram for all its cross-border settlements using digital assets. As part of this partnership, Ripple has made an initial investment of $30 million in MoneyGram equity and share warrants.
The partnership with Ripple is a win for MoneyGram, which has been facing stiff competition from fintech players such as PayPal Holdings, Inc. PYPL and Square, Inc. SQ. The company has been suffering from revenue declines for the past several quarters. In a year’s time, the stock has lost 80% compared with the industry’s decline of 3.1%.
The deal will reduce MoneyGram’s cash needs, for which it relied on traditional foreign exchange markets to meet settlement obligations. This required advance purchases of most currencies and consequent locking of funds.
Through this partnership, MoneyGram will be able to settle key currencies and match the timing of funding with its settlement requirements, reducing operating costs, working capital needs and improving earnings and free cash flow.
The deal is in vein with the company’s aim to grow its Global Funds Transfer segment, which is its primary revenue driver. It generated 49% of the company’s revenues in 2018.
Blockchain technology is fast gaining ground in the payments industry. A prominent player like Western Union WU has forged partnership with Thunes to facilitate cross-border payments via Stellar's distributed ledger technology. Western Union is also testing Ripple technology for remittances in certain corridors.
MoneyGram is also into the process of refinancing its existing first lien term and revolving facilities and expects to announce the closing of that transaction next week. This will further provide financial flexibility to it. We believe these recent developments will restore investors’ confidence on the company to some extent.
MoneyGram carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
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