Thursday , March 28, 2024

Euronet’s Money-Transfer Business Poised To Get a Big Lift From New Wal-Mart Deal

It may be headquartered in Leawood, Kan., but payment-services provider Euronet Worldwide Inc. looks abroad for most of its revenues. Thanks to a new deal with Wal-Mart Stores Inc., however, Euronet’s Ria unit is about to become a major force in domestic wire transfers.

Bentonville, Ark.-based Walmart on Thursday unveiled what it calls its “Walmart-2-Walmart” service that will use Ria to provide wire transfers from and to the No. 1 retailer’s 4,100 U.S. Supercenters and other Walmart-branded stores.

The deal will likely transfer to Ria a large volume of wire transfers originated by Walmart’s incumbent domestic provider, MoneyGram International Inc. Walmart accounted for 28% of Dallas-based MoneyGram’s fee and investment revenue last year, according to MoneyGram’s 2013 annual report. In a research note, Chicago-based William Blair & Co. says Walmart-to-Walmart transfers account for 13% of MoneyGram’s revenues, produce relatively low margins and are the slowest-growing of piece MoneyGram’s business.

Walmart, however, is not dropping MoneyGram entirely. It will continue to use MoneyGram for domestic transfers in excess of $900, and for pick-ups by recipients at non-Walmart locations, according to Daniel Eckert, Walmart U.S. senior vice president of services. MoneyGram has about 336,000 agent locations worldwide. MoneyGram and Xoom Inc. also enable Walmart customers to make international wire transfers.

MoneyGram’s share price plunged 16% in Thursday noontime trading from Wednesday’s close. Shares of wire-transfer market leader The Western Union Co. also slumped 4%.

A MoneyGram spokesperson says in an e-mailed statement that “while Walmart is our single largest agent, and experiences healthy growth, it has been decreasing as a percentage of our revenue for the past five years.” The spokesperson also says “MoneyGram remains committed to growing its long-standing partnership with Walmart” in providing money transfers.

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Once again creating a new product based on low price, Walmart is offering just two price points for Walmart-2-Walmart, $4.50 for wire transfers of up to $50, and $9.50 for transfers valued at $50 to $900. Walmart claims competitors often have up to 10 pricing tiers for transfers of up to $1,000 and they charge up to $70.

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The intended customer base is consumers with few traditional banking relationships, including members of the military or oil-field workers who often are far from banks. “About a third of the country is underbanked, and millions of those Americans use money transfers,” Eckert tells Digital Transactions News. He says consumers told Walmart that the process of sending wire transfers, besides being expensive, is “confusing, complicated. We figured there had to be a solution.”

To send a transfer, a customer will go to a Walmart customer-service desk or a Walmart Money Center if the store has one. The sender will pay for the transfer in cash or with a debit card, and provide Walmart with key recipient details, including the state for pick-up and a secret word or code, or identification number, to be used by the recipient. The recipient must provide that information, or a government-issued ID, in order to claim the funds.

The service goes live April 24. “We are ready to handle the volume,” says Juan Bianchi, chief executive of Euronet’s Ria Money Transfer segment. “We’re seven days out from going live, we are working on having the infrastructure in place well in advance.”

While it has numerous small providers, Bianchi says the U.S. “has been underserved” in wire-transfer choices because of the dominance of Western Union and MoneyGram. He says that until now, Euronet has not had “a meaningful intra-U.S. money-transfer service.”

How much of a profit Euronet will make from the deal is unclear since neither company released financial terms. The two Walmart price points are both below Ria’s average revenue per wire transfer, calculated by Digital Transactions News to be $10.44. That estimate is based on Euronet-reported figures for 2013 of $9.2 billion in global money-transfer volume and 35.2 million transactions. Euronet says money transfers generated 26% of last year’s revenues, which would be $367.4 million of the $1.41 billion total.

Walmart is treating wire transfers as it does thousands of other products, according to Eckert. “This is similar to what we do in laundry detergent, we provide choice,” he says. He adds regarding MoneyGram that “we have a strong relationship” with the company. “MoneyGram will continue to serve many, many customers throughout the Walmart network.”

MoneyGram domestic transfers in Walmart start at $4.75 for transactions of $50 or less. Transactions of up to $200 account for 75% of the business, according to William Blair. “We expect MoneyGram to lose a significant piece of the Walmart-to-Walmart business unless it reduces prices, which we would expect it to do on certain pieces of the business,” the firm’s report says.

The MoneyGram spokesperson says that “at this time MoneyGram is not taking pricing actions at Walmart or at any other U.S. location in response to Walmart’s announcement. We will continue monitoring market dynamics and make decisions accordingly.”

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Euronet bought Los Angeles-based Ria in 2007. Besides wire transfers, Euronet provides processing services for more than 18,000 ATMs and 68,000 point-of-sale terminals, mostly in developing markets, and mobile-phone top-ups and other prepaid services.

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