Overview of MoneyGram’s Decision to Utilize USDC

MoneyGram is expanding is remittance capabilities by supporting USD Coin (USDC) transfers on its network, as it understands that its position as a remittance leader is threatened by the emergence of blockchain technology.

Following the termination of its partnership with blockchain network Ripple, MoneyGram found a new blockchain partner in Stellar. MoneyGram is betting on this partnership to grow its market share in the blockchain remittance market.

For many years, remittance companies such as MoneyGram and Western Union were unchallenged in the remittance industry. Their extensive networks mean they cover the international market, making them dominant players in most countries where remittances are used. But the emergence of new technology like blockchain and especially the growing interest in cryptocurrencies are disrupting the remittance sector, as they enable cross-border transactions at a lower cost than remittance providers.

In order to maintain its position and remain competitive, MoneyGram is partnering with blockchain network Stellar. Through this new partnership, MoneyGram will enable users with digital wallets connected to the Stellar network to use USDC to settle international transfers in the local currency of their choice. With a growing number of consumers using cryptocurrencies to settle international transfers, MoneyGram is hoping to attract some of those customers to its platform.

This is not MoneyGram’s first attempt at working with a blockchain network. In 2019, it partnered up with Ripple, a partnership that ended in March 2021 due to Ripple’s ongoing lawsuit with the US Securities and Exchange Commission. The partnership with Stellar proves that MoneyGram recognizes how effective blockchain technology is in improving the remittance sector. By using USDC, transactions will be settled in near-real time in fiat currencies. In addition, using blockchain for remittances will reduce the transfer fees that customers have to pay to use the service. No details have been released on the cost of the service, but it is expected to be lower than the current fees charged by MoneyGram. These fees vary per country and the method of transfer chosen by the sender.

For example, sending $100 to Nigeria from the US would cost nothing if sent from one online bank account to another, but this transfer would take a week to go through. The same transfer would cost $2.99 if sent from a credit card to a direct bank account, but funds would be available to the recipient on the same day. The highest fee of $4.99 is charged to the sender when the recipient is expected to collect the cash at a branch.

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Choosing a stablecoin like USDC over any cryptocurrency is a wise decision for MoneyGram, as USDC is pegged 1:1 to the US dollar, which makes it stable and thus eliminates any volatility risk that is common with cryptocurrencies. Stellar was created for the very purpose of disrupting the remittance industry, as it was developed with the core idea of facilitating international transfers for the unbanked population and reducing remittance fees. By partnering with Stellar, MoneyGram is taking advantage of this ‘rival’ technology to improve its offering without having to invest in the development of its own blockchain network. According to MoneyGram’s 2020 annual reports, it is planning to streamline its operating expenses.

In the coming years, we should expect MoneyGram to focus its business on its online operations and gradually unwind its physical assets. Through its collaboration with Ripple, MoneyGram received $61.5m from the blockchain network between 2019 and 2020. Now that this revenue stream is lost, MoneyGram is aiming to replace it with this new deal.

MoneyGram is aware of how disruptive the blockchain technology is to the industry, and in order to maintain its position, it is partnering up with one of its rivals in Stellar. Through this partnership, MoneyGram is able to leverage blockchain technology and provide international transfers in real time and at a lower cost for its consumers.

This was written by Chris Dinga, Analyst, Payments, GlobalData