Adoption is built, not bought: Ripple’s partnership with MoneyGram

Editorial
July 8, 2019

On June 17, Ripple announced it has entered into a strategic partnership with MoneyGram, one of the world’s biggest money transfer companies. The intention is to become MoneyGram’s main partner for cross-border payments and foreign exchange settlements via crypto. For an initial term of two years, the partnership with between Ripple and MoneyGram focus on using Ripple’s xRapid product.

In addition to the partnership, or perhaps as an incentive, Ripple has agreed to inject US$ 50 million in return for equities over a two-year period. 

Why did Ripple partner with MoneyGram? 

The reasons why the partnership occurred are pretty straightforward. 

For MoneyGram, it’s a matter of ‘getting with the game’. Ever since the rise of Bitcoin, the troublesome nature of conventional cross-border payments and the inefficiencies of the global remittance industry have come under great scrutiny. Money transfers can be made much more efficiently by using cryptocurrency to send money. With this partnership, MoneyGram is taking its first step towards using the technology to upgrade its services.

Ripple’s side of the story is much less about evolving its offering for a better product-market fit, and more about buying its way into adoption. As Bitspark’s co-founder explained in his recently published ebook “The Compendium of Cryptocurrency Remittances”, Ripple’s xRapid actually works by leveraging pathfinding to transfer funds across currencies. Problems with liquidity, depth, volatility and the lack of on and off-ramps have kept Ripple from gaining traction. Buying their way into a better position is perhaps an attempt to sweep underwhelming demand for its product under the rug.

So far, the announcement has not caused a major price movement for Ripple, although this may be due to Bitcoin’s recent price rally. Shares in MoneyGram, however, soared 168% following the news. 

Will it change anything?

On the surface, this is an important development. 

Over the previous year, leading into 2019, the crypto industry has been moving steadily towards adoption. We’ve seen the proliferation of STOs, attracting interest from regulators; institutional fund managers adding crypto as an option for their clients to add to their portfolio; and in very recent times, Facebook entering the market with its crypto project Libra. 

The Ripple and MoneyGram partnership draws attention to one of crypto’s core value propositions as a means by which to transfer money across borders faster, cheaper and transparently, and as such moves the industry another step closer to being embraced by the mainstream. 

What’s not clear, however, is whether the benefits will be passed on to the customers. 

MoneyGram is a global company serving millions of people in over 200 countries across multiple fiat currencies. To meet settlement obligations, MoneyGram relies on the traditional foreign exchange markets which requires pre-funding, an expensive requirement which brings with it a certain level of risk. If they can find a way to use Ripple’s product, MoneyGram stands to save huge amounts of money. 

If they will actually use those savings to significantly lower the costs of their services, or whether the primary beneficiary of the deal is simply MoneyGram itself, remains to be seen.

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