“…to date MoneyGram has refused to open a meaningful dialogue with us, leaving us no choice but to make this proposal public…”
Euronet CEO’s letter to employees, December 13, 2007
In the past, MoneyGram and Western Union were often mentioned as the “monopolies” of cross-border money transfer. However, MoneyGram’s valuation was not only significantly smaller than Western Union’s but also had a multiple that was below that of any competitor.
MoneyGram’s valuation had been erratic since its IPO in 2004, even reaching near-zero levels in 2019 and 2020, until it was finally acquired by a private equity firm, Madison Dearborn Partners, in 2023:
Throughout its history, MoneyGram has stood out as the most irrational player in remittances, defying the stereotype about incumbent financial services companies being too conservative. The only explanation for such behavior could be the curse of an eternal “silver medal.”
Brief History of International Money Transfers
While it might feel that Western Union and MoneyGram have been around forever, the cross-border money transfer offering outside of banks and post offices was launched less than forty years ago. In those days, consumer options were limited to slow and expensive wire services by banks or physically mailing money orders. Western Union, as detailed in this in-depth SaveOnSend article, began international money transfers in the late 1980s, initially leveraging Visa and MasterCard networks. It proceeded with a rapid international expansion starting in 1989. Similarly, American Express launched a domestic money transfer service called “Moneygram” in 1988 and began international expansion in 1989.
Other current global leaders in international money transfers got their start in the following years: UAE Exchange (acquired by Wizz Financial in 2022), Ria Envia (now Ria Money Transfer, acquired by Euronet in 2007), and Golden Crown (based in Russia). Even Wells Fargo started a separate remittance business in 1994. By the late 90s, multiple providers were offering near-instant (within minutes) transfers around the globe. Remember this fact when you read another misleading article about today’s money transfers always taking days or weeks.
The timing proved to be quite fortuitous as global migration was picking up pace:
Rapid growth in migration resulted in a jump in remittance volumes in the following years:
By the late 1990s and early 2000s, first PayPal and then Western Union began offering online transfer options. All main traditional players launched digital channels by around 2010. For example, Wells Fargo added an online feature in 2009 (read more about banks’ role in remittances in this SaveOnSend article).
Separately from the original players, in the 21st century, the remittance industry began facing interest from digital startups. By 2007, Xoom, the first such startup, finally got its act together (more details in this SaveOnSend article) and began offering near-instant (within minutes) digital transfers around the globe out of the US. Around 2010-2012, many so-called Fintech startups entered the scene (more details in this SaveOnSend article). Finally, starting in 2014, a few Bitcoin/Blockchain-based consumer startups started offering cross-border money transfers for consumers. However, most of them quickly failed or pivoted to B2B (more details in this SaveOnSend article).
Western Union vs. MoneyGram: Performance matters
In addition to pioneering cross-border remittances in the late 80s, Western Union and MoneyGram also share some corporate history. Two of MoneyGram’s CEOs, James Calvano and Alex Holmes, came from Western Union. For a brief moment in 1995-96, both companies were under the same parent, First Data. However, due to regulatory pressure aimed at preventing a potential monopoly in the global remittances market, MoneyGram had to be divested. Coincidentally, despite seismic shifts in global remittances over the following decades, the same concern about a potential monopoly arose again twenty years later, in May 2015. Right after PayPal’s announcement of the Xoom acquisition, rumors started circulating that Western Union might acquire MoneyGram, sparking a flurry of expert opinions about the risks associated with such a merger.
From the beginning, Western Union’s remittances business has consistently been significantly larger than MoneyGram’s, currently processing over $60 billion more in annual cross-border transfers. MoneyGram holds the #6 spot among the top global players in this market.
As both providers have similar margins, the difference in their sizes applies to both the volume of transfers and revenue comparisons:
With regards to digital money transfers, MoneyGram initially allocated too much of its technology efforts, unsuccessfully, to digital kiosks rather than a website or mobile app. As a result, by 2018, their website and mobile app were rated as some of the worst in the industry:
This resulted in only 43% of digital revenues coming via MoneyGram.com, with year-over-year digital growth decelerating from 70-80% in 2014 to single digits by 2018.
During the same years, Western Union expanded its website and mobile app globally, maintaining a 5X revenue lead over MoneyGram in digital cross-border transfers.
But this doesn’t explain why MoneyGram stock underperformed the broader market and Western Union before 2020.
MoneyGram’s Suicide
MoneyGram was profitable and growing in the early 2000s. Its business model generated billions of dollars in a float from temporary remitted money orders and official check funds. Investing those billions provided extra income on top of MoneyGram’s main money transfer business. By late 2006, the company had $6 billion in its portfolio and a $32 stock price.
Like some other financial services firms at the time, MoneyGram was an eager investor in mortgage-backed securities, including those with subprime credit quality. As the US real estate market began to falter, MoneyGram failed to promptly identify and address its portfolio risk. Instead, the company’s executives and the Board kept stalling throughout 2007, assuring investors that its portfolio remained sound:
“It’s been 3 years now that we’ve been in this type of environment and our portfolio managers have done just an outstanding job continuing to get some spread for us”
“I don’t think there’s really been any changes since we’ve had our last earnings call that would really impact the Portfolio at this point one way or another outside of that range.”
“… seen very little impact from what has been going on in the marketplace from the rating agencies or otherwise on those levels of the securities…”
[Portfolio] “… continues to perform as we would expect…”
By June 2008, most of the executives and the Board members “resigned,” and an outside investment group became the majority shareholder. MoneyGram was saved but burdened with debt, and that burden has remained with the company for years to come, as illustrated in this Q3 2016 earnings call:
“I definitely would like to do more in the debt paydown. I think as Larry talked about, we were kind of up to 3.95x, we’re down to 3.45x, and that we should end the year I would guess around, after this payment, around $925 million outstanding. I’d love to push it down below 3x and continue to show or put the cash flow to utilization on the debt side. So, it will be lumpy. I’m not going to forecast right now that we’re going to do a payment every quarter…”
To make matters worse, similarly to Western Union, for too long MoneyGram was busy chasing profits at the expense of compliance. In 2012, this resulted in a $100 million fine for the company and, more uniquely, a $1 million personal fine against the Chief Compliance Officer. MoneyGram’s violations included:
- Not terminating specific MoneyGram outlets after being presented with information that strongly indicated that the outlets were complicit in consumer fraud schemes
- Not implementing a policy for terminating outlets that posed a high risk of fraud
- Structuring MoneyGram’s AML program in a way that information aggregated by MoneyGram’s Fraud Department on outlets, including the number of consumer fraud reports that particular outlets had accumulated over specific time periods, was not generally provided to the MoneyGram analysts who were responsible for filing suspicious activity reports (SARs) with FinCEN
The debt burden remained MoneyGram’s “sword of Damocles,” no matter the improvements the company made. Throughout 2012-2016, the company completely revamped its digital offerings, shut down its costly experiment with digital kiosks, launched new digital corridors, and fixed compliance and back-office processes while promoting the next generation of more agile management. However, to no avail. By the second half of 2016, research analysts remained unconvinced that MoneyGram stock could be worth significantly more than a $6-9 range:
- JP Morgan: $8
- Feltl & Co: $9
- Evercore: $6
- Morgan Stanley: $9
But then rumors of an impending acquisition began to swirl…
Euronet Derails MoneyGram & Ant Financial Deal
On January 26, 2017, Ant Financial (later becoming Ant Group) offered $13.25 per share for MoneyGram, in addition to agreeing to assume MoneyGram’s debt. This proposed combination fundamentally differed from the serial acquisitions in the industry or from a PayPal-Xoom deal. As discussed in this SaveOnSend article, PayPal acquired Xoom under a sweetheart deal, not really intending to drive any top-line synergies. Ant Financial was looking at MoneyGram’s assets as a launchpad to build a similar ecosystem of a variety of financial and tangential services as it provides in China.
MoneyGram was delighted to finally get rid of its private equity owners with their debt burden while accelerating the digital transformation journey. However, an old enemy couldn’t miss an opportunity to strike…
Euronet had tried to buy MoneyGram before. As MoneyGram started to unravel in late 2007, Euronet offered an all-shares deal. Less than a year earlier, Euronet bought Ria Envia (now known as Ria Money Transfer) and was hoping that adding MoneyGram would get it closer in scale to Western Union.
At that point MoneyGram did not entertain Euronet’s offer – it was still hoping to survive its existential investment crisis, and there was also a bad cultural fit between the two companies. Euronet did not take the rejection well and threatened MoneyGram with less pleasant interactions:
“Our preference is not to make our proposal public, and we expect you would keep it confidential. Of course, we reserve the right to discuss our proposal with your shareholders should you persist in being unwilling to meet with us to discuss it.”
MoneyGram kept stalling, and then its stock started to free fall. Euronet terminated its pursuit, and an external investment group was the only option left.
In retrospect, Euronet’s offer would have been financially vastly superior for MoneyGram shareholders if they had accepted it right away. In the following months, Euronet’s stock never quite reached the perilous levels of MoneyGram’s, but it still dropped 70%.
However, the acquisition would probably have never happened. Euronet was well aware of MoneyGram’s investment portfolio issue, including it in the due diligence request:
“…Our proposal is, of course, based on having the opportunity to conduct a customary due diligence review of MoneyGram’s businesses including, specifically, your investment portfolio (which, based on our conversations, we believe may require a cash infusion in the very short term…”
Back to March 17, 2017, when Euronet decided to go after MoneyGram again… Coincidentally, MoneyGram’s revenue and Euronet’s offer were very similar to the situation from almost 10 years earlier.
Knowing that its overtures would not be welcomed by MoneyGram, Euronet also launched a lobbying campaign, citing concerns about Ant Financial’s relationship with the Chinese government:
“The road ahead for MoneyGram remains highly uncertain in our view. In light of bipartisan concerns that have been raised by four Members of Congress, extensive public reports examining questionable data security practices of Ant Financial and broad concern raised over Chinese based acquirers, we continue to hold the view that the Ant deal may never close.”
Besides being factually incorrect (read this insightful post by Faisal Khan), it is also ironic that a company called EUROnet would hire lobbyists to prevent a Chinese company from buying a US business. Moreover, the majority of Euronet’s operations were outside of the US, with “71% of our revenues denominated in currencies other than the U.S. dollar.”
The irony of Euronet’s lobbying of the US government becomes even more striking when considering the key source of synergies proposed by Euronet: cost reductions. The negative impact would have been squarely in the US, where MoneyGram deployed most of its assets and resources.
“Expected Cost Synergies of Approximately $60 Million in the Second Year Post Close”
Euronet didn’t care about those ironies and didn’t mind being perceived as mercurial. Here was the cover of Euronet’s 2016 Annual Report, centered around a 50-year-old technology as a winner in the midst of a 14th-century entertainment gore:
But what was really behind Euronet’s acquisition attempt despite knowing full well that it wouldn’t be welcome? Without an acquisition, Ria Money Transfer’s organic performance was rapidly declining from almost 60% in early 2015 to less than 20% by early 2017:
This decline happened despite Euronet spending $100+ million on XE.com in 2015. The CEO of Euronet elaborated on some of the root causes behind a weak return on that acquisition in July 2017:
And then again in early 2018:
Against that backdrop and unable to compete on merit with Ant Financial’s higher offer of $18 per share, Euronet shifted its focus to political maneuvering:
Euronet’s efforts paid off, resulting in repeated delays in the review by the US government agency, CFIUS. By the end of 2017, MoneyGram’s stock price had dropped by 25%, significantly below the Ant Financial bid.
On January 2, 2018, Ant Financial and MoneyGram terminated the deal:
“The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago. Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS will not approve this merger. We are disappointed in the termination of this compelling transaction, which would have created significant value for our stakeholders.”
Euronet successfully derailed the deal for MoneyGram and Ant Financial, and in 2019, Ant Financial ended up spending $0.7 billion on the UK remittances firm, WorldFirst.
MoneyGram vs. Ria Money Transfer in the Battle for Walmart
Historically, nearly 30% (!) of MoneyGram’s volume came through Walmart. However, in 2014, the retail giant introduced the “Walmart-2-Walmart Money Transfer Service,” in collaboration with Ria Money Transfer as its backend provider for certain cross-border money transfer destinations. The division of money transfer volumes among the bitter rivals was further complicated by the fact that MoneyGram continued to handle KYC (Know Your Customer) requirements even for Ria’s transfers.
This led to a public dispute in the summer of 2019 when Euronet accused MoneyGram of making up stringent ID requirements for Walmart:
MoneyGram responded that Euronet (Ria Money Transfer) was ignorant and negligent:
The feud between the two firms continued throughout 2019, with Euronet repeatedly blaming MoneyGram-imposed requirements for its declining growth rates.
Later in 2019, Walmart announced that other brands, including Western Union, would be added to its marketplace, where customers in stores could select among multiple money transfer providers. By late 2020, Walmart represented only 8% of MoneyGram’s revenues.
2017-2019: Collapse in MoneyGram’s Performance
The Ant Financial-Euronet bidding war was particularly interesting given the context of MoneyGram’s performance during that time. While the turnaround started in 2012 and initially led to an acceleration in revenue, MoneyGram’s growth curve peaked in late-2015-early-2016, and its performance began to collapse afterward.
For a year and a half in 2018-2019, MoneyGram didn’t have a single quarter of growth and even experienced revenue losses of up to 20%. It was as if the hopes and subsequent derailment of an Ant Financial acquisition left MoneyGram executives ambivalent about running the company.
In the same year, the cross-border money transfer market was growing, which meant that MoneyGram was losing market share, even in its most important and the world’s largest corridor, USA-to-Mexico.
Did it lose market share to a sophisticated fintech startup or a cash-rich blockchain player? Was it unable to compete with Western Union’s much larger war chest? Nope, the market share winner, Intermex, was much smaller in size with no digital capabilities.
Intermex created a culture focused on high-quality execution, hired the best MoneyGram performers, and impressive results followed:
To limit market share loss, MoneyGram occasionally reduced prices during that period in its biggest corridors:
In late 2019, MoneyGram even decided to forgo profits on digital transfers in its two top corridors by charging zero FX markup:
During this period, MoneyGram faced several challenges, including losing a domestic contract with Albertsons to Western Union. Additionally, they had to renegotiate a long-term agreement with Walmart, resulting in a new arrangement where MoneyGram operated as a “white label” provider behind the scenes. While this agreement resulted in some new volume for MoneyGram, it came at a significantly lower revenue per transaction:
“This was a competitive RFP process and while the result will adversely impact the revenue and profitability over the short-term, over the long-term this is a contract better to have won than to have lost. In fact, since the launch of Wal-Mart2World, 15% of the customers using this service had not previously used MoneyGram…”
MoneyGram Partners with Ripple
Bitcoin, Ripple, Stellar, and blockchain technology, in general, have always been considered potential infrastructure for cross-border money transfers (more on that in this SaveOnSend article). After years of small-scale pilots, the blockchain hype for remittances was rekindled in 2018. Western Union’s stock price surged by 20% on the back of rumors about a potential pilot involving Ripple.
A week later, MoneyGram also joined the blockchain hype by announcing its partnership with Ripple:
“The current model for these payments requires money transfer companies to use pre-funded accounts across the globe to source liquidity. Newer blockchain technologies have the potential to revolutionize this process and optimize capital deployment.”
According to this logic, if the pilot with Ripple were successful and banks in all major corridors adopted Ripple’s technology, MoneyGram would potentially need to hold less cash on hand. The amount of freed-up cash could be up to $35 million, which was approximately 1% of MoneyGram’s investment portfolio at that time. Even if it generates a 5% annual return, it would mean an extra $2 million in revenue for a $1 billion revenue company. Something about this partnership didn’t add up…
By late 2018, the investor hype from a Ripple partnership had died down, and MoneyGram’s stock price dropped to the lowest level in 10 years. On June 17, 2019, MoneyGram’s desperation led to a surprising decision. The company agreed to sell 10% of its equity to Ripple for $50 million, which translated to approximately double the stock price at that point.
It might seem like a wasteful decision for Ripple, but the blockchain unicorn was literally printing money (by creating crypto-tokens called XRP and selling them to institutions and consumers) at a speed of $250 million per quarter. What does one do with billions? You could spend tens of millions on naming a college after your wife, but then what? Up till that point, Ripple had numerous pilots, including with Western Union and many large banks, but it finally had to demonstrate to XRP holders that a well-known financial services firm was using it in production.
Spending $50 million on MoneyGram’s stock got Ripple free publicity and leverage to make MoneyGram use the XRP-based payment rail, starting with the world’s largest consumer money transfer corridor, USA-to-Mexico. This meant that MoneyGram had to complete two conversions in and out of volatile crypto. These extra conversions and the resulting volatility caused MoneyGram to incur additional costs instead of a single and simple FX conversion between two of the most actively traded currencies.
Reading the above slide closely, you would notice that MoneyGram couldn’t even negotiate with Ripple to get free XRPs, which would have allowed it to avoid the need for cash pre-funding. Consequently, the blockchain promise of at least saving some working capital didn’t materialize either.
So what was really behind this partnership for both sides besides 1) publicity with a sandbox for Ripple and 2) $50 million in cash for MoneyGram when no one else was willing to support the company? Here was the catch: Ripple was paying extra to MoneyGram, around $10 million per quarter, for transferring money via XRP.
Ripple cleverly did this to create an illusion of a real use case by artificially increasing the liquidity of XRP on foreign exchanges. This, in turn, might persuade more institutions and consumers to invest in XRP, which might drive the coin price higher. Here is how MoneyGram’s CEO, Alex Holmes, described this arrangement in the Fall of 2019:
Did you get the point, dear reader? It’s not that Ripple’s superior technology made the MoneyGram business model fundamentally more effective against Western Union or Remitly, and MoneyGram compensated Ripple for that added value. It’s that MoneyGram’s traditional transfer flows made XRP more valuable, and Ripple was compensating MoneyGram for it (Ripple made similar deals with smaller providers like Intermex, TransferGo, Azimo, etc., but for less than $20 million annually in total at the time). The resulting XRP liquidity was responsible for 60% of all crypto volumes in the US-Mexico corridor.
What MoneyGram’s Board and Management did not expect was how a cash infusion from Ripple would significantly increase stock volatility. Instead of typical investors, MoneyGram stock suddenly appeared on the radar of crypto traders, resulting in much higher trading volumes…
… and the exceptional volatility in MoneyGram’s stock price, for example, compared Western Union:
While Ripple did not impact MoneyGram’s business model, the partnership made listening to MoneyGram’s investor presentations more enjoyable. A quarterly exchange between MoneyGram executives and Wall Street analysts started to include an obligatory update on the lack of any material impact from the Ripple partnership but with the assurance of an imminent breakthrough:
Since MoneyGram’s dealings with Ripple had no impact on its business model, by March 2020, the stock price was approaching pre-Ripple levels:
Despite the SEC’s direct knowledge of this brazen pay-per-play scheme since 2019, it took no action.
In early 2020, SaveOnSend requested comments, but to no avail:
Finally, in December 2020, the SEC decided to take action by going after Ripple. After some hesitation, MoneyGram had to give up on $50 million in Ripple’s annual payment and terminate the arrangement. After a lengthy PR campaign depicting the partnership as “pioneering,” “transformative,” and “unique,” MoneyGram had to acknowledge that Ripple’s arrangement never meant anything substantive:
This debacle scared other cross-border money transfer providers away from crypto-blockchain partnerships, prompting this comment from another top-10 global remittances player, Intermex, in 2021:
One might assume that after such a profitable yet legally questionable debacle, MoneyGram would steer clear of similar pursuits. However, that was not the case. To compensate for the $50 million gap left by Ripple, MoneyGram almost immediately began promoting Bitcoin to undocumented migrants while charging a commission of 4% plus $3:
By June 2023, the MoneyGram CEO finally acknowledged the obvious reasons why crypto-blockchain technologies were not making a significant impact, based on their extensive efforts with Ripple and Stellar:
MoneyGram Gets Digital Right
In 2018, MoneyGram finally took the international expansion of its digital capabilities seriously, significantly enhancing the global presence of its website and mobile application:
In the summer of 2019, MoneyGram was so confident in the success of its digital efforts that it made an extravagant claim about the superiority of its mobile application.
In reality, the MoneyGram mobile app, while showing significant improvement, still lagged behind some of its competitors in terms of both the quality and quantity of customer feedback:
However, investors’ primary concern, and the reason why the stock price remained at an all-time low during that period, was whether the rapidly declining revenue would enable MoneyGram to refinance its $0.9 billion in debt by March 2020. By May 2019, MoneyGram’s market capitalization had fallen below $100 million for the first time in the company’s history:
With blockchain and digital initiatives not yielding results, 2020 appeared grim for MoneyGram. The arrival of Covid further cast doubt on the company’s survival. By April 1st, the stock was trading at $1.18.
However, seven months later, the stock had surged sixfold. During the Covid spike, while Western Union saw a 20% decline and Intermex’s stock rose by 50%, MoneyGram’s stock emerged as the strongest performer by far.
The surprising turnaround was primarily attributed to MoneyGram’s renewed focus on online and mobile services in the second half of 2018, which started to yield results two years later. With top-notch mobile apps available in over 20 countries and an online presence in approximately 80 countries, combined with aggressive pricing, this created the perfect opportunity to introduce MoneyGram to consumers worldwide who were looking for digital methods to transfer money during the COVID-19 pandemic.
Consumers evidently embraced this offering, and by Q3 2020, MoneyGram’s digital revenue was growing rapidly enough to offset losses in the offline business. In 2021, for the first time since 2015, MoneyGram was back to a 20% growth rate.
Stagnation, Sale, and More Blockchain
As you might have inferred from MoneyGram’s history, the temporary spike in growth didn’t endure. Later in 2021, MoneyGram ceased its growth.
A multitude of poor decisions led to MoneyGram’s decline from the #2 global remittances player to #6. Even within its home turf, the outbound US market, between 2014 and 2022, MoneyGram slid from the #3 to the #8 spot.
To be fair to MoneyGram, the competition has also become significantly tougher since the 1990s. Traditional money transfer specialists and banks have been complemented by fintech startups. Some of these fintechs, such as Wise and Remitly, have proven to be much more effective than MoneyGram in their operational and technological approaches. In September 2021, the MoneyGram CEO shared a specific example of how a fintech like Revolut has impacted its revenue growth.
When a company ceases to grow, and strategic acquisitions are not a viable option, the final alternative is to be purchased by a Private Equity firm. In February 2022, MoneyGram entered into an agreement to be acquired by Madison Dearborn Partners in an all-cash transaction valued at approximately $1.8 billion, which was around 50% above the stock price. The acquisition was completed in June 2023.
MoneyGram’s new investors and Board members included a curious addition: Stellar. Founded by the same person who created Mt. Gox and Ripple, Stellar is another blockchain application for facilitating cross-border payments. In his October 2023 interview, MoneyGram’s CEO hilariously attempted to present a real differentiation between Ripple and Stellar, characterizing it as the distinction between a private blockchain and coin designed for facilitating payments, versus technology aimed at making the world a better place.
A similarly puzzling explanation came from Stellar’s CEO. She emphasized how Stellar played a crucial role in aiding MoneyGram in distributing money in Ukraine but didn’t clarify what MoneyGram was lacking. MoneyGram has been operating in Ukraine since the late ’90s, offering minutes-long cash delivery without the need for a credit card or bank account.
In its more than three decades of history, MoneyGram has been many things, but never dull. Like a game of whack-a-mole, no matter how hard fate may have struck it, MoneyGram has always managed to resurface. How will it surprise everyone next?
Conclusion
Hopefully, dear reader, you found this overview helpful in forming your own perspective on the future of MoneyGram. As with all our articles, please comment below if you have any additional factual information that could alter the article’s conclusion.
We will keep this post regularly updated, so please check back soon!
