WU’s (Maybe) Bid For MoneyGram: Critical Mass In Digital C2C Pivot?

The recession is upon us, and as consumers stash the cash, and wallets are walloped, a seismic shift may be brewing in the money transfer business, through consolidation.

The rumored tie-up (financial terms have not been disclosed yet) between Western Union and MoneyGram seems poised to embrace the inevitable — a movement away from in-person transactions to digital channels.

We’ve been down this road before, when, in 2017, Ant Financial Services Group struck a pact to acquire MoneyGram. That deal fell apart amid scrutiny from U.S. regulators. Back then the deal was predicated on Ant’s drive to expand in growing markets, cross-border, beyond China.

But the new roadmap might be illuminated a bit by Western Union’s most recent 8-K filing with the Securities and Exchange Commission (SEC) that came Tuesday morning — and where cross borders are blurred by digital channels.

The company said consumer-to-consumer (C2C) transaction declines began to improve as measured from March to May. As reported, total transactions were down 30 percent as measured from late March to early April, were down 21 percent in April, and then were down a relatively stable 7 percent in May.

Drill down a bit, and digital transactions, which were 30 percent of total C2C transactions in April and May, soared, and the pace quickened. Digital transactions were up 50 percent in late March to early April, up 77 percent in April, and up 99 percent in May.

Within digital transactions, as measured in the second quarter to date, westernunion.com transactions were up 39 percent in April and 51 percent in May.

In a Tuesday (June 2) press release, Western Union CEO Hikmet Ersek said, “We are encouraged that our money transfer transaction trends continue to improve as the disruptive effect of COVID-19 appears to be lessening. Importantly, the strong growth we are seeing in our digital business is especially impressive given that our digital money transfer business was already over $600 million of revenue in 2019, and it confirms that our digitally focused growth strategy is positioning us well for the future.”

Back in May, MoneyGram’s latest earnings report detailed that the walk-in business had been taking a hit amid the pandemic. At the same time, there was a 57 percent surge in digital transaction growth for the first quarter of 2020. MoneyGram online transaction growth was up to 88 percent by the end of April, and triple-digit growth in some key markets. MoneyGram’s digital component as a percentage of overall transactions is a bit lower than Western Union’s at 18 percent at the end of the first quarter.

The consolidation angle also requires patience — establishing critical mass for a strong behavioral shift even though the overall remittance industry faces headwinds. In April, the World Bank said global remittances will decline by about 20 percent this year to about $445 billion, and across all regions. But when that market returns, it may be the case that a combined Western Union/MoneyGram catches a hefty digital tailwind even as walk-in business remains in the rearview mirror.