Following up on a $30-million investment in June, blockchain-services provider Ripple Labs Inc. has made another $20-million equity investment in wire-transfer provider MoneyGram International Inc., making Ripple the owner of nearly 10% of MoneyGram’s common stock.
Announced Monday, the new investment is no surprise. The companies indicated in June it was an option as part of a commercial agreement that includes MoneyGram using Ripple technology to facilitate fast, low-cost settlements of cross-border transactions. Ripple paid $4.10 per share, a nearly 34% premium to MoneyGram’s Friday closing price of $3.07.
MoneyGram will use the funding to increase volume for On-Demand Liquidity, Ripple’s blockchain-based product formerly known as xRapid, which uses Ripple’s XRP cryptocurrency to send money globally. Dallas-based MoneyGram said in a news release that it currently is moving about 10% of its Mexican peso foreign-exchange trading volume through On-Demand Liquidity.
“Essentially, we’re using cryptocurrency as a unit of measure through the Ripple blockchain,” MoneyGram chief financial officer Larry Angelilli said Nov. 1 on the company’s third-quarter earnings conference call, according to a transcript from The Motley Fool financial news service. “This means that we can reduce our inventory of pesos and reduce our exposure to volatility during the shortened time that we need to hold them. This is just like just-in-time inventory for our currency position, reducing our working capital needs as well as matching the timing of our sends and the settlement with our agents.”
MoneyGram also said it has started transacting in four additional cross-border corridors, including Europe, Australia, and the Philippines since the partnership with Ripple was announced.
Dallas-based MoneyGram has struggled as agent-based money-transfer providers contend with new digitally based rivals, which means Ripple’s investments and potential improvements to its cash flows could be a lifeline. And for San Francisco-based Ripple, the MoneyGram tie-up holds the promise of generating new volume for On-Demand Liquidity, which has had difficulties converting trials into ongoing business, some observers say.
“Our partnership with Ripple is transformative for both the traditional money-transfer and digital-asset industry—for the first time ever, we’re settling currencies in seconds,” Alex Holmes, MoneyGram’s chairman and chief executive, said in the release. “This initial success encourages us to expedite expanding our use of On-Demand Liquidity. Partnerships with companies like Ripple support innovation and allow us to invest in creating better customer experiences. I anticipate furthering our growth into new corridors and exploring new products and services.”
The new investment will make Ripple the owner of 9.95% of MoneyGram’s common stock. Counting non-voting warrants it holds, Ripple will own about 15% on a fully diluted basis. MoneyGram’s biggest shareholder is the private-equity firm Thomas H. Lee Partners L.P., with a stake of approximately 38%, according to Yahoo! Finance.