MoneyGram suspends RippleNet

MoneyGram confirms massive XRP use in Mexican peso transactions

The money transfer service’s partnership with liquidity provider RippleNet now accounts for 10% of its Mexican business, and is set to go global

The head of MoneyGram confirmed today that the global money transfer company has been using XRP cryptocurrency to exchange U.S. dollars and Mexican pesos extensively since July. 

Over the course of the third quarter, MoneyGram ramped up its use of XRP sent via Ripple’s On-Demand Liquidity product to the point that it now accounts for 10% of company’s daily liquidity needs in sending U.S. customers’ money to Mexican recipients.

“As a result of this success, we’re working to expand the partnership to new corridors before the end of the year,” said Alex Holmes, MoneyGram’s chairman and CEO, during its third quarter earnings results conference call on November 1. “We believe that we will lead the industry in accomplishing this vision and that our partnership with Ripple will be a competitive differentiator in the months and years ahead.”

The company, which does business in more than 200 countries and territories, plans to use XRP in more currencies through the end of 2019, added Larry Angelilli, CFO of MoneyGram. It will begin to add new currency pairs that don’t include the U.S. dollar throughout November. 

Remittances have become a key focus of the potential uses of blockchain technology in the finance industry, as it is ripe for disruption. These money transfers sent home by immigrant workers are generally for no more than a few hundred dollars, but are extremely expensive. Sending $200 via money transfer services can cost $14—7%—and goes as high as 10% in parts of Africa and some Pacific islands, according to the World Bank. The multinational institution said remittances accounted for $528 billion in 2018.

The Mexican Connection

Speculation has been growing about whether MoneyGram’s use of RippleNet was responsible for at least some of the explosive daily growth in XRP transactions throughout October. 

According to BitInfoCharts, XRP usage jumped from 728,000 transactions on October 21 to 1.6 million on October 31. Throughout August and September, XRP volume was steadily between roughly 800,000 and 1.1 million. 

Speaking on the FinTech Beat podcast on October 29, Ripple CEO Brad Garlinghouse pointed to at transactions between XRP and the Mexican peso. 

“[A]t a time when crypto trading dropped by about 50% over the summer, that volume grew by more than 50%,” he said. “That’s because there’s real utility and a growing amount of traffic, and we’re continuing to grow that amount of traffic.”

A large percentage of those XRP/MXN trades were utility transactions, not speculation, he added. 

“We have seen some individual days where over 80% of volume between XRP and [the peso] was actually payment flows through our On-Demand Liquidity product,” said Garlinghouse. “That means only 20% was just people speculating and trading.”

Faster and cheaper

“Currently MoneyGram is using Ripple to facilitate what are almost instant foreign exchange trades in Mexican peso.” said Angelilli. “For example, we purchase the cryptocurrency XRP on a U.S. exchange, transfer it to an exchange in Mexico, and sell the XRP on the exchange in Mexico for pesos, all within about 60 seconds. This means that we can reduce our inventory of pesos and reduced our exposure to volatility during the shortened time that we need to hold them.”

That’s a big deal because while the peso is a very liquid currency, it is also a very volatile one, he said. It can move as much as 2% a day, Angelilli added. 

Before the RippleNet partnership, MoneyGram, “would have to pre-fund, every four or five days, many millions of dollars into Mexican pesos,” Garlinghouse said, adding that now MoneyGram can re-up several times a day. “That makes their treasury operations much more efficient.”.

“This is just like just-in-time inventory for our currency position,” Angelilli said. “Reducing our working capital needs as well as matching the timing of our sends and settlement with our agents.”

Using RippleNet’s technology gives MoneyGram the ability to “almost perfectly match consumer transfers with the settlement process,” Holmes added. 

“Those processes are very different today,” noted Holmes. “We preposition cash all around the world. So, the more real-time we can make that, the more efficient that will become and the better revenue opportunities there are.”

Beyond that, he added, “we believe that we can develop new digital products that would benefit from real time settlement.”

Updated 8:50 a.m. November 8 to reflect use of Ripple’s On-Demand Liquidity product.

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.