Ripple, MoneyGram and XRP… It’s all about the use case!

While the digital asset space is awash with news of milestones being achieved and increasingly positive sentiment after reaching yearly highs within the past fortnight, blockchain payments startup Ripple has struck a deal to buy a stake in money transfer giant MoneyGram. MoneyGram stated it will utilise the digital token XRP as part of its day-to-day operations by way of Ripple’s xRapid transaction product.

In March last year, we reported that MoneyGram had launched a pilot program to use XRP in cross-border payment flows through xRapid. This announcement came as welcome news as it was one of the first real use case of digital assets to be adopted by a financial institution.

Last month Ripple agreed to enter into a strategic partnership with MoneyGram (NASDAQ: MGI), one of the world’s largest money transfer companies. Through this partnership, which will have an initial term of two years, Ripple would become MoneyGram’s key partner for cross-border payment and foreign exchange settlement using digital assets. In conjunction with the partnership, Ripple has agreed to provide a capital commitment to MoneyGram, which enables the company to draw up to $50 million in exchange for equity over a two-year period.

Under the deal, according to the Wall Street Journal and Fortune, Ripple will spend $30 million to buy shares at a price of $4.10 each. And in the next two years, MoneyGram has the option to sell an additional $20 million worth of shares to Ripple at the same price. As noted by the Journal, MoneyGram shares were trading at about $1.45 each at the close of day, meaning Ripple’s purchase price is close to three times the current market value.

Notably, the deal will also see MoneyGram utilising the digital token XRP as part of its day-to-day operations by way of Ripple’s xRapid transaction product. MoneyGram said that it was piloting the token back in March 2018, as we reported in the Ainslie Daily News at the time. 

MoneyGram already services 200 countries and territories, with roughly $600 billion processed in the global remittance market. At present, the company uses traditional foreign exchange markets, which requires pre-funding accounts. Ripple and MoneyGram anticipate settlement fees dropping from $30 per transaction to “fractions of a penny,” while settlement times are expected to drop from 15-60 minutes to just a few seconds.

The chart below indicates that the first step banks take with xCurrent has the potential to save them in the order of 33%, when compared to existing practices. Additional cost savings are possible when banks implement XRP and xRapid. Usage of XRP is projected to save banks from 42% to 60% (high and low volatility, respectively).

In a statement, MoneyGram CEO Alex Holmes said “it’s imperative that we continue to improve our platform and provide the most effective solution to get funds from point A to point B. Through Ripple’s xRapid product, we will have the ability to instantly settle funds from US dollars to destination currencies on a 24/7 basis, which has the potential to revolutionize our operations and dramatically streamline our global liquidity management.”

Ripple CEO Brad Garlinghouse likewise said in a statement that the partnership will allow MoneyGram to “greatly improve its operations and enable millions of people around the world to benefit from its improved efficiency. This is a huge milestone in helping to transform cross-border payments and I look forward to a long-term, very strategic partnership between our companies.”

What are the charts saying?

So far this year XRP has underperformed the rest of the top market cap assets. Though this is not surprising since we generally see XRP as one of the last movers when the rest of the market increases. Based on the real world use case of XRP in reducing friction for cross border payments, combined with the underperformance against the rest of the market, XRP has the potential to significantly outperform the rest of the big market cap assets in the short to mid-term. 

Top Market cap performance in the last 12 months (Values denominated in USD)

Our AI trading signals have had a buy recommendation for XRP/AUD since May 10th capturing the move from around 42 cents to today’s current price of 57 cents. The signal still maintains a buy recommendation...