The coronavirus pandemic has made paper money literally a dirty word, causing a rush to digital payments that may be too fast for Western Union and MoneyGram to keep up with as separate companies.
Western Union is reportedly trying to buy MoneyGram, which would combine the market’s two main legacy money transfer companies. Both company’s models have been under stress for years at the hands of fintechs that use blockchain and other emerging digital models to offer P2P rails for transfers, remittances and international payments.
A deal is not assured, and Western Union did not return a request for comment by deadline. The companies report large revenue, with some softness that preceded the coronavirus pandemic.
Western Union has more than 500,000 agent locations in 200 countries, while MoneyGram has 350,000 global locations. These networks are a legacy of both firms’ iconic pasts as locations to retrieve money that has been wired, originally by telegram as early as the 19th century.
“Western Union will have the opportunity to consolidate the MoneyGram volume to its platform and jettison duplicitous brick and mortar locations,” said Sarah Grotta, director of the debit and alternative products advisory service at Mercator, adding Western Union would get some digital assets from MoneyGram to combine with its own technology. “This is about achieving volume at scale that will drive efficiencies to better compete with fintechs like TransferWise.”
Both Western Union and MoneyGram are aware of the growth of digital, and have taken steps to embrace modern payments. Western Union in late 2019 hired Amazon to provide long-term cloud services, saying the deal will allow Western Union to expand its digital footprint, providing agility for its online transformation.
Employee Benefit News' March/April issue explores how workplaces are navigating pandemic challenges and making plans to return to the office.
The Internal Revenue Service released information on how employees now have until the end of the year to repay any payroll taxes they deferred from last year.
CPA firms will be in a great position to help their small business clients with the latest round of the Paycheck Protection Program, according to Barry Melancon.
Western Union has additionally partnered with Visa to speed payment processing for mobile transactions and collaborated with blockchain blockchain initiatives to expand its reach in emerging markets. These moves have already helped Western Union partly offset political unrest in Lebanon and South America.
MoneyGram has also partnered with Visa to speed transfers and has attracted investment from blockchain firm Ripple. The investment is noteworthy in giving MoneyGram access to Ripple, a firm that has enabled cross-border payments with banks and fintechs. These firms use Ripple’s ledger to cut time and costs from payments by eliminating third parties such as correspondent banks.
Western Union would be able to maximize the Ripple XRP integration, which will also benefit from the Western Union digital assets, said Krista Tedder, head of payments at Javelin Strategy & Research, adding that about 13% of Americans have used Western Union or MoneyGram in the past 12 months.
“The combined usage would make the legacy remittance services on par with Cash App and Google Pay for digital wallet P2P usage,” Tedder said.
MoneyGram also attracted interest from China's Ant Financial in 2017, though that proposed merger was scuttled due to political pressure during the U.S.-China trade dispute. MoneyGram began a digital transformation about three years ago, with a goal of becoming more customer-centric. "Our products were designed primarily for the distribution aspect of our business — Walmart, Canada Post and other agents — rather than the consumers who came in to pay for transfers," Kamila Chytil, MoneyGram's chief operating officer, told PaymentsSource in a May interview.
Western Union and MoneyGram’s automation moves are designed to move more business to digital channels and reduce reliance on agent locations, though that's not an overnight evolution. Western Union’s revenue for the quarter ending March 31 was $1.2 billion, or an 11% decline from the prior year, according to Macrotrends. That decline was likely due to the impact of the coronavirus — like most firms, Western Union has withdrawn its outlook for 2020. For 2019, Western Union’s revenue was $5.29 billion, a 5.33% decline from 2018; and in 2018 its revenue was $5.6 billion, a 1.2% increase from 2017.
MoneyGram in 2019 reported full-year revenue of $1.2 billion, which was a decline of 11% from 2018. MoneyGram has also reported an accelerated decline in walk-in business as the pandemic accelerated. From March 16 to March 31, MoneyGram reported a 57% boost in digital volume while walk-in volume fell 29%. In April, MoneyGram reported an 81% boost in digital transactions over 2019, yet digital is still only 28% of all MoneyGram transactions. Like Western Union, MoneyGram has pulled its forward outlook.
As MoneyGram and Western Union modernize, digital payment companies have been investing heavily in more streamlined versions of the same model. PayPal has made the popular Venmo a vital part of its expansion strategy. Venmo hasn't been profitable, but it acts as a loss leader as PayPal pushes other products to merchants, such as credit and multichannel payments. PayPal also acquired Xoom in a more direct assault on Western Union and MoneyGram’s markets.
Another rival, TransferWise, in March entered a partnership with Ant Financial's Alipay, opening an addressable market of 700 million users. TransferWise has also connected to Square’s Cash app.
All of these firms are chasing a large remittance market that has taken a hit during the coronavirus crisis, creating more pressure. The virus has also moved people away from cash to contactless payments because of concerns over cash being contagious, though there’s no scientific consensus on that risk.
“This is a leading indicator of what’s happening in the cash business. Coronavirus has compressed five years of cash decline into three months,” said Richard Crone, a payments consultant. “We have two brands here with century-old names linked to a heritage around the telegram.”
