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Ripple buys 10% stake in MoneyGram, market loudly applauds

Posted: 18 June 2019 2:00 pm News

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Has Ripple's strategy changed? It may find it tougher to woo customers with a big stake in MoneyGram.

Ripple has acquired an 8-10% stake in MoneyGram at $4.10 a share, in a deal that runs to $50 million all up.

The new arrangement will reportedly help Ripple roll out its solutions to real-life money transfer services, while giving MoneyGram a much-needed cash injection.

Upon conclusion of the deal, market forces gave both MoneyGram and Ripple a standing ovation. MoneyGram shares are up more than 150% in after-hours trading.

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While XRP chalked up a sudden 6.5% rise.

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Pivots for all

MoneyGram has committed to a hard pivot in response to the emergence of blockchain technology, perhaps in part because its current financial situation puts it in "go big or go home" territory.

This move may also signify a pivot in Ripple's strategy.

One of the reasons this news is raising eyebrows is because it appears to pit Ripple against its own prospective customers. It's trying to pull the banks, remittance companies and other money-moving services under its umbrella, but now that it owns a fair share of the world's second-largest remittance company, it might have a harder time wooing prospective customers.

Hard facts

By the numbers, tests show that remittance services such as Western Union and MoneyGram can cut the average cost of a transfer by up to 70% using Ripple instead of traditional foreign exchange brokers.

But also by the numbers, banks and remittance companies are not hot on Ripple.

According to Ripple, more than 200 banks and financial institutions are using it. It's a dubious claim, but even if taken at its most optimistic face value, it's not especially heartening given that Ripple has been pushing this solution since 2012. By contrast, the Swift gpi system has only been around since 2017, but it's being used by more than 450 banks to settle more than $300 billion in payments daily.

It could be that RippleNet as envisioned is not going to happen, so Ripple stopped trying to make it happen. If Ripple uptake has stalled, this could be a sensible direction.

If you can't join them, beat them.


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Disclosure: The author holds BNB, ZIL and BTC at the time of writing.

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