MoneyGram International, Inc. MGI is in most likelihood about to face competition from Xoom’s recently launched money transfer service in the United States.
Xoom was founded in 2001 and was acquired by PayPal in 2015. Post the acquisition, Xoom became PayPal’s international money transfer service provider.
Xoom yesterday announced the roll out of a service for customers to send money to recipients in the United States for the first time. Xoom will partner with Walmart and Ria Money Transfer to enable customers to use its transfer services to send money fast for cash pick-up typically in minutes at nearly 5,000 locations across the country.
The operations of Xoom in U.S. remittance market will pressurize MoneyGram’s revenues from its U.S. operations, which declined 1.4% and 13% in 2017 and 2018, respectively.
This decline adversely impacted the company’s overall revenues. Further, increasing compliance costs and expenses undertaken to improve operating efficiency weighed on the company’s margins. MoneyGram’s results reflected its weak performance, missing estimates in four out of the last eight reported quarters.
Notably, share price has fallen 76% over the past two years compared with the industry’s decline of 12%. Other companies in the same space, such as The Western Union Company WU, PayPal Holdings, Inc. PYPL and Fiserv. Inc. FISV, have gained 35.6%, 37% and 71%, respectively, during the same time frame.
MoneyGram, which is already reeling under weakness within its domestic money transfer business, is also facing stiff competition from digital-native companies such as TransferWise, Azimo, Remitly and WorldRemit. Xoom uses its online and mobile platform for money transfer, which makes its services more cost-effective and efficient.
MoneyGram has to pay a commission to brick-and-mortar agents that originate the transfers. Xoom, however, steers clear of the same, because of its use of digital channels, thus saving a chunk of operating cost, which enables it to enjoy operating margins.
In addition to the changes in the competitive environment, MoneyGram's global compliance requirements are becoming increasingly more complex, which has been affecting its top-line growth and profit margin.
Over the past two years, MoneyGram’s market capitalization has eroded by 72%.
Nevertheless, the company has taken a number of steps ranging from cost savings, investment in digital platform, adherence to compliance, and building partnerships to improve its performance.
Investment in innovative products and services, such as moneygram.com, mobile solutions including mobile application, integration with mobile wallets, account deposit services and kiosk-based services, has led to an increase in revenues from its digital channel in the recent quarters.
Furthermore, MoneyGram has partnered with Visa for its Visa Direct services, which provide consumers with additional choices on how to receive funds. The company has also collaborated with Ripple to utilize its Ripple's On Demand Liquidity blockchain product, as well as XRP, Ripple’s cryptocurrency, to facilitate cross-border foreign currency exchange settlement. The company expects that this partnership will reduce its working capital needs and generate additional earnings and cash flows.
Through the remainder of 2019 and into 2020, the remittance industry will continue to see a number of trends including the growth of digital transactions, aggressive pricing strategies, the importance of customer experience and geopolitical volatility. Management expects pricing pressure and competition to be continuous challenges. Currency volatility, liquidity pressure on central banks and pressure on labor markets in specific countries may also continue to impact MoneyGram’s business.
MoneyGram carries a Zacks Rank #5 (Strong Sell). The Zacks Consensus Estimate for its current-year earnings has been revised 44% downward over the past 30 days.
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