In 2015, $582 billion was sent by migrants to relatives in their home countries. Of that total amount, nearly a quarter (23 percent), or $133.5 billion, originated from the United States. It’s a big deal, but it is mostly an area of financial services that goes wholly unnoticed except by the population that use and rely on it. The remittance business is massive and massively important to the individuals and the countries that receive them, but in the face of other retail payments innovation, they keep a relatively low profile.
Which made last week extraordinary in at least two regards: Remittances made the headline news twice.
The first big story was about immigration and the possibility of a border wall financed by taxing or freezing the billions in remittances that migrants send from the U.S. to Mexico each year. That announcement — and the subsequent Twitter war between two sitting heads of state over it — was certainly eye-catching.
But the more extraordinary thing about last week was what the second important piece of remittance-related news had to offer: Ant Financial Services Group of China will pay $880 million to buy MoneyGram, the second-largest global remittance firm, based in Dallas, Texas.
Ant Financial is as an affiliate of Alibaba Group Holding, is the parent company to Alipay, is currently valued at $60 billion and is headed toward an IPO sometime later this year, according to experts. By all accounts, it’s gotten very serious about its global expansion, particularly in the United States. Thus, the MoneyGram buy.
And this is a big step for two firms that might have just partnered instead of merged. But as MoneyGram CEO Alex Holmes told Karen Webster in a conversation shortly after the news of the acquisition broke, the larger ambitions of both firms were better served as a single firm.
“As a public company and as a CEO, it is my job to take any discussion seriously that has the potential to benefit the shareholder of the organization. So, we entertain anything coming in that would be of value,” Holmes told Webster, noting that most other such conversations never got much past the “initial chat” because that bigger value wasn’t there.
But the opportunity was different in this case because, in Ant Financial, Holmes said, was the possibility of a strategic partner that provided something beyond good value to shareholders: a chance at building, Holmes said, a global financial services model behind it that is “transformational.”
So, what does that model look like, and how could it change the payments landscape?
Though Ant Financial and MoneyGram come at payments from different starting points and perspectives — one with a hyper-digital payments focus, the other a cash-centric, large physical footprint enterprise — they come together when it comes to the bigger picture, Holmes told Webster.
“[Ant Financial] is all about equal access to financial services globally. When we speak about financial inclusion that is open and supportive of the needs of society, both organizations fit squarely in the middle of that,” Holmes said. “Ant Financial wants to be in every country in the world. There are 7,000 employees of Ant Financial , but 6,800 are in China. Now, they will have 3,000 employees who aren’t in China who can now grow and expand Ant Financial services.”
Mobile wallets are part of a Chinese consumer’s life in a very unique way, Holmes told Webster, and the movement of money in the form of cash funds in and out of a wallet is fundamental.
“For Alipay, remittances are core to this business, and whether that becomes remittances that get integrated into mobile and into wallet, or whether they remain cash, they want to make sure they have that reach around the world in a number of different ways.”
Not to mention the 2.4 billion bank accounts worldwide that MoneyGram is able to send money to, which helps Alipay grow and expand its full lifestyle vision of mobile payments.
That reach and that lifestyle-oriented approach, noted Holmes, are the long-term power of the partnership — and the world of capabilities they unlock here in the U.S., in China and around the world.
“Together, we can make domestic remittances part of a lifestyle versus something that is kind of just one-and-done. Remittances can become a lifestyle application the way Alipay has made some many other parts of mobile about lifestyle. I think it is transformational to the way people look at sending money and transformative to how that service is viewed and shaped.”
How does that transformation look? Depends on where the customer looks.
Opening Up Closed Doors
Alipay is beloved and certainly a powerhouse if one is talking about Chinese customers. It is also picking up throughout Asia in general — particularly since its strategic partnership on mobile wallets with India’s Paytm.
But in the U.S., Webster noted, Alipay is known — if it is known at all — as a Chinese brand.
The addition of MoneyGram — a very familiar and trusted American payments brand — to the equation, however, might just change the math a little bit, as it gives Alipay the opportunity to expose the American customer to the bigger world of the Alipay payments lifestyle.
“We are going to see, when this deal goes through, those capabilities getting built out between our two organizations in a much more robust and dynamic way. Our goal is to really create something transformational, and I think this will push a lot of players in the U.S. and around the world to rethink how they are competing.”
And, he noted, where they are competing and at what scale. Because the scope, speed and compliance issues involved in moving over half a trillion dollars a year in remittances are ever-evolving, and MoneyGram, as it eyes a bigger future in China, wants to be at the forefront of defining those issues.
The CX Core
With millions of Chinese nationals living and traveling abroad each year, it is almost impossible to overstate the size and importance of the remittance marketplace in China.
“There are millions of Chinese living outside of the mainland, and whether those are students or people traveling or permanent residents living outside the country, we are excited to integrate our product and capabilities into China — especially when combined with our full connections in the rest of the world. We think that this will allow us to grow a very robust send market [in China].”
China, he noted, is a tough place for foreigners to work — particularly if the work is moving money around, as currency control is a serious local issue. But with the combined ability to move cash via wire and increasingly digital abilities to move cash-equivalent funds digitally and directly that they develop as part of Ant, they’re playing a very different ballgame — a game where the prize is the $16 billion or so a year and growing that Chinese citizens are sending out worldwide.
It won’t be easy — even with the acquisition. The other big remittance story last week serves as a reminder that we live in interesting times. Given President Trump’s prior statements about China and the trade imbalance, it is not hard to imagine he likes the remittances to China only slightly more than he likes remittances to Mexico.
But, Holmes noted, after enough years in the business of sending money cross-border, one learns quickly that change is normal, and flux is the price to ride.
“There are always changing aspects in a dynamic world and in any country immigration comes under scrutiny. There is a lot going on right now with President Trump, and he’s in his own way to secure the border. Last week, we saw Jack Ma having a big discussion with the president, and we don’t think this will have any real harm to our U.S. operations.”
They will, of course, have to prove that out as the deal is cleared by various regulatory authorities over the next several weeks and months.
But both firms are confident that the process will progress forward, and before long, they will be a single merged entity — now acting on a very global stage.
The challenges are big. But if one can say nothing else of this deal, one can at least commend both firms for making moves large enough to match their massive ambitions.