As MoneyGram International sits solidly as the world's second-largest money transfer business, its growth strategy is focused on diversifying its product suite and capturing market share that remains untapped by MoneyGram and rival Western Union.
"I think we can be as big as them some day," says MoneyGram CFO W. Alexander Holmes. "Can we overtake them? I think so, but that's also based on how they perform."
The annual global remittance volume increased 3% in 2012, reaching an estimated $529 billion, and is projected to rise another 6% to $559 billion in 2013, according to a recent World Bank report. But Dallas-based MoneyGram lays claim to only 5% of that market, while Denver-based Western Union holds about 15% market share.
"We can all do really well simply by focusing on our individual businesses," Holmes says.
With 88% of MoneyGram's total revenue coming from its retail remittance services, the company is working to diversify its product suite through strategic alliances with PayPal and Fiserv's Popmoney that give consumers more options to obtain cash from electronic transfers without using a bank account.
"We're trying to appeal to other groups of individuals and expand our network, both physically and virtually," Holmes says.
The 80% share of the remittance market that MoneyGram has set its sights on can be grouped evenly between two categories, informal and formal, Holmes says. The informal market is a combination of unlicensed and unregulated operators of money transfer services, as well as less structured transactions, like consumers who physically move cash across borders themselves or through family or acquaintances. The formal market includes smaller regional money transfer companies and alternative services, like bank transfers.
Heightened regulatory requirements are helping weed out many of the informal players and promote greater transparency into the fees that money transfer service providers charge and the foreign exchange rates that affect transaction settlement.
"It'll bring a level of fairness to how people understand how much money is getting sent in a transaction," Holmes says, adding later, "Hopefully over time, regulation will help force that informal part of the share out of the market."
However, Holmes says some new regulations on money transfer services don't reflect current market conditions, where consumers tend to be price conscious and shop around for competing services.
"There's an assumption that consumers aren't educated about our industry and that's not the case," he says.
MoneyGram's agent network has doubled since 2008 and its services are offered by approximately 321,000 agents in 300,000 locations across 198 countries. In March, MoneyGram restructured its debt with $975 million in refinance credit that significantly lowered its interest expenses.
On May 22, the company moved its stock listing from the New York Stock Exchange to the Nasdaq Global Select Market and executives marked the occasion by ringing the exchange's opening bell at a ceremony in New York's Times Square.
But the significance of MoneyGram's market presence is perhaps best reinforced by recent action Western Union has taken — price reductions across 25% of its business that reflect a weakening of the premium rate that the Western Union brand can command.
"So in some corridors, we did lose the competitive advantage. Our price was too high and we have to adjust our prices in some corridors," Western Union CEO Hikmet Ersek says in a transcript of his remarks at a technology, media and telecom investor conference on May 8.
Western Union and MoneyGram compete head-to-head on large partnership contracts like post offices, banks and retail stores. But it will take more than competing on price for MoneyGram to succeed. MoneyGram has developed online money transfer services on its own website and through partnerships with online payments providers like Ukash. It's also expanding its reach through bank partnerships that leverage its cross-border remittance service through mobile devices and ATMs.