Despite the mad rush among investors to buy up bitcoin, XRP and other prominent cryptocurrencies, these digital coins have largely failed to operate as instruments for payment. MoneyGram's deal with Ripple might change that, or it might be the first nail in the crypto coffin.
MoneyGram has committed to piloting the use of Ripple's XRP, the native digital asset of the XRP Ledger, in payment flows through xRapid, Ripple's solution for on-demand liquidity. Ripple is one of the crypto world's few players to make a steady outreach to offer its platform for mainstream uses.
And as the thought leaders of the financial world such as Warren Buffett and Jamie Dimon express doubts about cryptocurrencies, the support of a mainstream consumer payments brand like MoneyGram is no small thing.
The killer app for blockchain?
While it is easy to get swept away in the wave of blockchain initiatives trying to find a purpose for the technology, there is one area where there is a clear value proposition — remittance services.
The incumbents, Western Union and MoneyGram, were born well before the era of digital payments, and to this day still rely on networks of human agents. Yet these companies have built thriving international networks that have not been rendered obsolete by the internet age. Western Union and MoneyGram handle 17% and 5% of global remittances respectively.
Nonetheless, times are changing and consumer and business expectations around speed, convenience and cost for P-to-P and other forms of payments are forcing incumbents to reassess their value propositions, with the threat of disintermediation waiting in the wings.
Companies that once scoffed at the idea of accepting cryptocurrencies must now evaluate the technology's role in their businesses. "Incumbency is a powerful thing," MoneyGram's chief revenue officer for the Americas and Europe, Peter Ohser, told PaymentsSource back in 2014. "No doubt there's a lot of competition but we think competition is a good thing. We don't get very concerned about it. For the last 30 years we've built out or core asset ... which was very expensive."
Western Union's CEO, Hikmet Ersek, expressed a similar sentiment at that time, stating that bitcoin did not keep him up at night.
MoneyGram did not provide comment to PaymentsSource by deadline, but its chief executive expressed a more welcoming tone in the company's press release: "Every day blockchain technology is changing the norm and encouraging innovation. Ripple is at the forefront of blockchain technology and we look forward to piloting xRapid. We're hopeful it will increase efficiency and improve services to MoneyGram's customers," MoneyGram CEO Alex Holmes said.
And that's the key to this puzzle. MoneyGram probably doesn't envision a world of people sending XRP to one another instead of fiat currencies. Even though MoneyGram's pact puts XRP in the spotlight, it's ultimately a technology play.
“The real upside for any remittance company leveraging blockchain is improved liquidity and, for customers, the benefit is near real-time cross-border payments,” says Talie Baker, analyst at Aite Group.
Ripple may have a tailor-made solution for faster payments, but it's not the only offering on the market that can address that need. Its work with MoneyGram must determine whether its crypto roots make Ripple's network superior to competing products from incumbents.
Can Ripple make waves?
Cryptocurrencies may be the hot new thing in fintech, but the older incumbents have a proven track record. MoneyGram's vast network of physical locations and live agents give it an edge with a customer base that relies heavily on cash.
While smartphones are ubiquitous in developed countries, there remains over a third of the global population without them. MoneyGram’s analog past works to its advantage in a digital age, having built up 350,000 agent locations in over 200 countries over the past 77 years of operation. The addition of Ripple to the mix is in many ways symbiotic — facilitating the latest developments in digital currency transfer to an outreach network that would take decades to cultivate from scratch.
“This is very much part of Ripple’s strategy to partner not just with banks, but also with money transfer networks and emerging providers, such as mobile wallets," said Zil Bareisis, analyst at Celent.
If Ripple's pact with MoneyGram succeeds, it would be a significant step toward bringing Ripple's reputation down to Earth. Like bitcoin, the value of Ripple's XRP has spiked, "fueled by the hysteria" as The New York Times recently put it. That article asked whether Ripple's traction with banks meant anything for digital currency, since banks and payment companies are more interested in the underlying blockchain technology than the appeal of XRP.
It is worth stressing however that the MoneyGram-Ripple partnership is a pilot and therefore not a full-blown endorsement of XRP or, more broadly, blockchain. Therefore it remains to be seen whether this extends into a more robust validation of Ripple. Nonetheless, Ripple is clearly be broadening its reach into the mainstream financial ecosystem.