MoneyGram Adjusting To Walmart Competition

P2P

MoneyGram International has been the chief supporter of funds transfers for U.S. Walmart locations for some time, but the relationship became strained in April when the megaretailer launched its own, less-expensive U.S. store-to-store transfer program. During a recent analyst conference, Alex Holmes, MoneyGram’s CFO and COO, said the world’s second-largest funds-transfer company isn’t yet ready to make pricing changes in response, though it is exploring global outsourcing and offshoring opportunities, which would represent a strategic shift from its emphasis on U.S. business.

When Walmart in April announced its own store-to-store funds-transfer service, it promoted the fact that it cost customers less to send funds than competitors’ prices. One of those competitors is MoneyGram, which has had a longstanding relationship with Walmart to support transfers in the U.S., Puerto Rico, Mexico and India.

In a June 11 presentation at the William Blair & Co. Growth Stock Conference, Alex Holmes, MoneyGram International chief financial officer and chief operating officer, discussed the company’s relationship with Walmart and spelled out the potential impact Walmart’s P2P initiative with Euronet’s Ria Financial Services could have on its operations.

MoneyGram has had a relationship with Walmart since 1998, and it has renewed its contract with the megaretailer three times since then, Holmes said. “That’s been a very good partnership for us and has helped us reposition our brand in the market and really kind of grow from kind of a nascent player to a major player in the world,” he said.

In April 2013, MoneyGram and Walmart launched a new three-year contract, and there’s opportunity to extend it for two additional years, “so we feel very well-positioned with that relationship,” Holmes said.

However, as part of the 2013 contract renewal, Walmart was given the option to launch a white-label U.S.-to-U.S. funds-transfer product, and it did so in April. Through that product, Walmart’s customers may send up to $900 to any other U.S. Walmart store.

Walmart’s transfer pricing is less than MoneyGram’s, so it has the potential to dramatically affect MoneyGram’s revenues, Holmes said. The product is currently priced about 25 cents less for sends up to $50, and $2 less for those up to $200, a pricing range that represents about 75% of the MoneyGram’s volume.

“Above $200 up to $900, the price disparity gets quite large but is obviously a smaller percentage of the transaction – but obviously a high percentage of revenue,” he said. “In total, that’s about 12% of our total company revenue, but 9% of our revenue less commissions is in that because Walmart, from a send and receive when added together, does get a higher net total commission.”

Despite the potential adverse impact Walmart’s own service may have on MoneyGram, the company does not view U.S.-to-U.S. activity as a core value-creating piece of the business, Holmes said.

“We think cross-border remittances are much more important, but the U.S. is a very unique market in the sense it does have a very large domestic-send business and receive business, which you don’t see in a lot of other markets,” he said. “It grew about 9% in the quarter, the U.S.-to-U.S. business. When you exclude Walmart from that number, we actually grew about 14%.”

Once Walmart launched its service, MoneyGram revised its outlook for the year based on anticipation of losing revenue – either from cannibalization of its current product or from MoneyGram having to change prices to adjust, Holmes said.

“I would say that the update for now is that I think it’s proceeding as we predicted,” he said. “We have not changed any prices yet. We continue to look at that, and we’ll be careful in our responses. We always are when there are any pricing moves and any competitive changes.”

Holmes cited an inconsistency in how Walmart’s clerks tout one transfer product over another as one of the reasons not to rush to make pricing changes.

“The consistency at the source isn’t there, and the consistency across 4,000 Walmarts isn’t there yet,” he said. “Until that comes, … we want to make sure we’re not giving something away we don’t need to give away. So I think getting that value proposition back into the store, getting the consumer to understand the difference in the products will be important, and so it’s going to take a little bit longer to really kind of play that all through.”

MoneyGram continues to be Walmart’s provider of funds-transfer service to over 200 countries from an outbound perspective, and it continues to support Walmart’s transfers that are not sent to other Walmart stores, such as for bill-pay purposes. “That relationship continues and, despite this new product and kind of the impacts on revenue, we do feel good about our relationship with Walmart,” Holmes said.

In part because of the change in its relationship with Walmart, MoneyGram anticipates laying out about $30 million to $40 million over the next two years to generate anticipated savings of $15 million to $20 million as the company looks to reposition its largely U.S.-based business today into more global outsourcing and global offshoring opportunities, Holmes said.

“A lot of that is stemmed around reducing costs, but it’s also around helping us kind of invest and change our profile to get more into the self-service channels, which is a different way of going to market than kind of in your traditional cash-to-cash,” he said.