MoneyGram International Inc. (NASDAQ: MGI) is attracting a lot of attention from value investors because it is incredibly cheap right now. The company’s shares were trading at $8.81 on 26 March 2018.
Despite the low price, MoneyGram is a company with some very interesting opportunities in front it. The money-transfer service has a well-publicized and much-partnership with the popular cryptocurrency Ripple (XRP). Such a deal has the long-term potential to be a moneymaker because Ripple is intended to be a gateway between the banking system and the cryptocurrency world.
Unlike most cryptocurrency developers, the Ripple team is making a serious effort to tap a mass market. They are planning to test MoneyTap, a QR-code based mobile payment app, that is supposed to convert Ripple into yen in Japan in Fall 2018 for example.
What Ripple can do for MoneyGram?
Ripple might help MoneyGram make money because people would be able to send XRP payments to its stores.
The customers would be able to pick up the payment in cash or get it converted into fiat currency and downloaded into a debit card at MoneyGram. Another popular use for Ripple would be to convert it into fiat currencies to pay utility, tax or other bills from MoneyGram.
Yet another use would be to use Ripple to buy airtime for mobile phone or tokens for the payment of electricity or gas bills. This might be achieved by simply adding the ERC20 or Bancor Protocols to the Ripple cryptocurrency.
Two companies Power Ledger and Restart Energy are trying to create ERC20 (Ethereum-ready) tokens that consumers can use to purchase utility service with. Restart even plans to sell electricity and gas service through retail franchises that can be easily combined with MoneyGram. A company called BitMinutes is planning a BitMinutes (BMT) smart token that is based on reloadable telephone minutes
Another potential moneymaker would be to allow individuals to buy Ripple with cash at its stores. The customer would have the option of storing the Ripple in a hardware wallet, sending it to a digital wallet, or sending a Ripple payment.
An even bigger moneymaker for MoneyGram would be to offer MoneyTap to its customers. Individuals would be able to get cash, send wire transfers, buy money orders, pay bills, or make deposits with funds from MoneyTap at the MoneyGram locations.
Why Ripple and MoneyGram might work
There are some serious drawbacks to MoneyGram’s flirtation with Ripple. The biggest of which is that Ripple is not readily convertible with other cryptocurrencies.
There is no easy to convert Ripple into Ethereum (ETH), the second most popular cryptocurrency. The lack of Ethereum; or Ether (ETH), convertibility is a major drawback, because most of the companies planning to sell services to the public for cryptocurrency plan to use ERC20 tokens which are easily convertible into Ethereum. Both Power Ledger and Restart Energy are issuing ERC20 tokens, as is the video retailer 777.Blockchain.
A related problem is that Ripple is not readily convertible into the most popular and best-known cryptocurrency Bitcoin (BTC). Bitcoin is currently the only cryptocurrency widely accepted by online retailers, and the only altcoin that can be used to purchase Amazon gift cards online with.
Therefore it might be better if MoneyGram started accepting Ethereum or the Bancor (BNT) token which can be converted into ERC20 protocol tokens. A long-term solution for MoneyGram would be for Ripple to add the Bancor protocol to its XRP cryptocurrency.
The Vast Market MoneyGram can tap with Cryptocurrency
The potential market for cryptocurrency-related consumer goods and financial services is vast.
Just a few of the cryptocurrency-related products MoneyGram might be able to sell include:
- Minutes or Airtime for mobile devices such as smartphones.
- Uber and Lyft rides.
- Gift cards of all shapes and sizes.
- Gift cards for online retailers such as Amazon and Walmart.com.
- Netflix or Hulu gift cards.
- Airline or train tickets.
- Insurance policies.
- Car rentals.
- Visa, MasterCard, or American Express Crypto Debit Cards.
- Bill Payment services
- Payday loans
- Money Orders
- Wire Transfers
- Video Games
- Business Lending
- (Wiring money to individuals in other nations)
- Invoice lending
Obviously legal and regulatory permission would be required to require a lot of these services. If MoneyGram could position itself as the go to “place to get cash for your crypto;” or “buy stuff with your crypto” it might be a huge business.
A major business would be allowing people to convert cryptocurrency they received in payment for gigs or jobs into fiat currency. Two companies Aitheon and SyncFab want to build platforms that pay people in cryptocurrency for doing gigs with machinery. SyncFab even wants to operate machine tools on the blockchain and pay their operators in its ER20 tokens.
Is MoneyGram Making Money Right now?
The potential benefits to MoneyGram from cryptocurrency are vast, but is the company making right now?
The answer provided by the financial numbers from 4th Quarter 2017 was no. MoneyGram reported a loss of -$52.4 million and a negative operating income of $56.5 million for the last three months of 2017. The company did report a gross profit of $212.3 million on revenues of $408.2 million for the same period.
Revenues and the net profit were down from the same period in 2016. MoneyGram reported revenues of $416.2 million and a gross profit of $216.7 million for 4th Quarter 2016. The company did make money during 4th Quarter 2016, with a net income of $7 million and an operating income of $33.7 million.
MoneyGram is making Less Money
The bottom line is that MoneyGram is making less money from its core business. Business is down because of the availability of faster, more convenient, and sometimes cheaper alternatives such as PayPal (NASDAQ: PYPL).
PayPal offers instant money transfers online through its flagship app, the ability to access cash fast through Debit Cards, and international money transfers through Zoom. The PayPal threat is magnified by the fact that its users do not have worry about their friends or neighbors seeing them at the MoneyGram store or counter in the supermarket.
Nor is MoneyGram generating that much cash it reported a free cash flow of $22.3 million and an operating cash flow of $42.7 million in 4th Quarter 2017. Those numbers were up from $11.4 million and $33.8 million in 4th Quarter 2016.
That means MoneyGram is making more cash from its business. Unfortunately, it is keeping little of that cash, it reported just $190 million in cash and short-term investments in 4th Quarter 2017.
My take is that MoneyGram is a marginal business that is doomed unless it can harness the power of new technology. The company’s value is in its publicly-traded stock, and networks of brick and mortar money transfer stores. Those assets can be leveraged into a next-generation payment network through the integration of new technologies like cryptocurrency and mobile payment apps.
Therefore, MoneyGram (NASDAQ: MGI) is a great speculative stock for those who want to take a risk on new payment technologies. Everybody else should avoid MoneyGram because its core business is slowly and steadily dying.