SEC heat on Ripple gives MoneyGram pause, even as digital channel grows

Ripple's woes with the Securities and Exchange Commission caused MoneyGram to roll back its work with the blockchain ledger provider, but an explosion of its online money transfer growth is making up for what it lost in dissolving the partnership.

The Dallas-based money transfer provider is emphasizing MoneyGram Online as a key revenue driver, noting the digital channel surpassed the number of transactions it accepts in store at Walmart during the last month of the fourth quarter of 2020.

With digital transfers accounting for 28% of all transactions in the quarter, MoneyGram was able to report net income at $7.3 million, a bounce-back from its $11.3 million loss for the fourth quarter of 2019. Total revenue of $323 million was flat compared to last year, but demonstrated money transfer stability after some difficult months, particularly in-store business related to the pandemic.

"Our fourth-quarter and year-end results demonstrate the sustaining strength of our digital transformation," MoneyGram CEO Alex Holmes said Monday during the company's earnings call. Because of the winter storms and power outages in Texas, MoneyGram had to postpone its earnings call, originally planned for Friday. "Despite the many hardships caused by the pandemic, we found that our customers actually sent more money home than ever before."

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Part of the boost for MoneyGram stemmed from cost savings it got by using Ripple's blockchain to support foreign exchange settlements for international payments, but Holmes said his company pulled off the Ripple platform this year in using "an abundance of caution" while Ripple deals with SEC allegations about the XRP token. Ripple reported in December that it was not using Ripple's blockchain trading platform for direct transfers of consumer funds, digital or otherwise.

The SEC is questioning whether the XRP token is a security that should face more regulation, or if it is an open source, as Ripple describes it, making its price correlate more with bitcoin or ether. Ripple wants it regulated as a utility, and the SEC sees it more as an investment generator.

After the earnings call, Ripple provided a statement to clarify that the companies' contract is still in effect: "We signed a multi-year contract in 2019 with MoneyGram, which is still in place and is not limited to their use of [on-demand liquidity]. Together we are actively leveraging and exploring alternative use cases."

Though Holmes said MoneyGram's pullback from Ripple could not be viewed as a permanent decision, he's not inclined to have his money transfer business associated with it at this time — especially because the SEC scrutiny has caused money transfers on the blockchain ledgers to be more difficult.

"One of the exchanges, for example CoinBase, you can't trade XRP on the exchange any more, and you have to be able to exchange the XRP coin back into fiat on one end or the other," Holmes said of Ripple's challenges. "It's not happening on every exchange and it's not a complete withdrawal, but it is in a couple of those exchanges that we had relationships where they have changed their policies."

MoneyGram doesn't want to get caught up in the question over whether XRP is a security or not, Holmes said. "Only they know that, with 'they' being the government and we will see how it plays out. It is definitely a difficult area when you get into the questions of what you can and can't do, when you have open questions like that," he added. "The SEC has its allegations, but yet to be proven, and Ripple believes it has some strong arguments."

MoneyGram still views Ripple as a forward-thinking payments and money movement technology company, but MoneyGram would be best served by waiting out the Ripple situation, Holmes noted.

The digital growth at MoneyGram provides promise beyond the $8.1 million benefit the company reported as related to its Ripple partnership, as well as representing a growing segment during a period of time in which walk-in business is likely to fluctuate within certain geographic segments. Holmes has talked about the importance of its walk-in locations, citing its customers desire for in-person interaction when making a money transfer.

MGO delivered 100% year-over-year transaction growth in the quarter, and cross-border online transactions and revenue each grew at a 143% clip. Digital revenue, of which MGO provided the vast majority, set a record in the fourth quarter of $57.4 million, a 79% increase. Account deposit and wallet transactions increased 140% year over year.

"One of the key metrics we focus on as an organization is customer retention rate," said Kamila Chytil, chief operating officer at MoneyGram, who was participating in her last call for the company as she moves on to other career opportunities. "MoneyGram now has an impressive customer retention rate of over 80%."

The growth of Visa Direct in the MoneyGram mix is likely to continue, the company said. Last month, MoneyGram expanded its use of Visa Direct as a P2P engine, making it available for customers to use on the company website or mobile app to send money in near-real time to Visa debit card holders in parts of 25 countries in Europe.

MoneyGram reported a 650% growth spurt from Visa Direct transactions in the fourth quarter, citing the ease at which MoneyGram users can use a Visa debit card to spend money.

Walk-in business began to rebound as retail centers saw more foot traffic with pandemic guidelines in place. Still, after years of having its service available within Walmart stores without a competing service, MoneyGram has had to coexist with competitor Western Union in some of Walmart's stores since the start of 2021.

Western Union announced its agreement with Walmart in January, as Western Union is seeking in-store locations to help offset the loss of walk-in traffic at its agent locations during the coronavirus pandemic.