MoneyGram deepens ties with Alipay despite failed merger

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If MoneyGram couldn't be taken under the wings of Ant Financial, which operates China's Alipay wallet, it is doing the next best thing.

In short, Ant Financial's bid to acquire MoneyGram last year ran into the political roadblock of President Donald Trump's disdain for the idea that a powerful Chinese company would acquire an American money transmitter. This stance led Ant to abandon its purchase of MoneyGram.

It left Dallas-based MoneyGram, with faltering earnings in 2017 and 2018 and a desire to become part of Ant Financial, in a position to embrace the same philosophy competitor Western Union has taken in turning to digital payments. In this case, it was seeking to possibly tag the MoneyGram name to a partner like Alipay that can help carry that brand. In Western Union's case, it has been Amazon.

"After our acquisition was denied by the government, we wanted to partner with Ant Financial to execute the movement of money around the Asian market," MoneyGram CEO Alex Holmes said during Monday's 2018 fourth-quarter earnings call. "Our launch with Alipay is live, and they have leading providers partnering with them and we feel we can help facilitate the fund flows through the various wallets in their market."

MoneyGram is leaning on digital payments to help the company grow, while complementing the cost-cutting measures it has had in place since 2016. While reducing headcount, IT costs and contractor spending, MoneyGram has also emphasized reducing risk by closing 61,000 unproductive or high-risk locations throughout its global network.

To counter that, the company is making inroads with mobile through a new loyalty program, various promotion codes and the ability to send notifications to customers. In the past year, MoneyGram has added notification capabilities in 55 countries and 18 languages with plans to add 100 more countries in the coming year.

For the fourth quarter of 2018, MoneyGram reported a 15 percent drop in total revenue at $345.8 million compared to the previous year. Money transfer revenue, at $302.9 million was 17 percent off last year's number.

The company's net loss of $12.5 million was well below the 2017 number of $52.5 million for the quarter.

For the full year, MoneyGram's total revenue of $1.4 billion was a 10% decline from the previous year. Net loss was $24 million, compared to a $29.8 million loss in 2017.

Competitive pressures in the U.S. come from Western Union, Zelle and Venmo. These factors were compounded by the fact that MoneyGram had a restructured contract with Walmart and lost the Albertsons grocery stores account. The company estimated that the Walmart contract, resulting in the white-labeled Walmart2World service, and the Albertsons loss contributed to a $32 million negative impact on the bottom line. Albertsons now promotes in-store money transfers through Western Union.

In the aftermath of Ant Financial dropping its proposal to acquire MoneyGram, the company turned to Visa late last year to establish a push-debit partnership and start the wheels in motion to advance MoneyGram's digital capabilities. MoneyGram also put more emphasis on its mobile app, giving consumers more options to transfer money directly to a recipient's mobile wallet.

It all points to a steady future for MoneyGram if it can stay on course with its digital advancements while staying true to its core services, Holmes said.

"Cash is going to be a key part of our business for a very long time, as the relevance of cash continues to be a critical and strategic advantage," Holmes said. "But continuing to diversify and increase the size of the pipes and the flows of funds is critically important."

This is especially true when looking at how the business is evolving globally in a lot of markets with mobile phones being the key financial device, Holmes added.

"In the Asia Pacific region and parts of Africa, digital wallets on receive side will continue to play a very big role," he said. "However, sending [funds] through wallets is going to be a slower process, but doing so online and through apps will be critical in the future."

And even though Ant Financial's planned acquisition of MoneyGram had to be abandoned, Holmes knows that other partners or stakeholders could come forward in the future to present new options.

"With the structure we have and who we are, it is important to always be looking to maximize shareholder value and we would certainly consider any opportunities out there," he said. "But our focus is on moving the company forward and executing on the strategies we have and continuing our de-risking efforts."

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