MoneyGram suffers earnings hole after pausing Ripple partnership

MoneyGram suffers earnings hole after pausing Ripple partnership

After suspending the partnership with Ripple, MoneyGram is hit by an earnings hole.
MoneyGram and Ripple are pursuing “alternatives” to continue the partnership, according to CFO Larry Angelilli.

The Wall Street Journal has published a report on the suspension of the partnership between Ripple and MoneyGram and its consequences. As CNF reported, the decision was made earlier this week and is based on the Securities and Exchange Commission’s (SEC) lawsuit against Ripple over digital asset XRP.

Apparently, the proceeds from the partnership are of paramount importance to MoneyGram. However, the SEC’s lawsuit has brought “logistical challenges” and “legal and reputational risks”. MoneyGram used Ripple’s solutions and its Ripple-based payment network as “an alternative source of income”. In addition, the use of Ripple’s technology reduced the amount of working capital required by MoneyGram by bringing in additional cash flow.

As reported by CNF, MoneyGram has disclosed in several documents filed with the SEC that it was receiving fees from Ripple as early as 2019. These were intended to “incentivize” the company’s payment solutions partner to use its XRP based On-Demand Liquidity (ODL) solution.

MoneyGram received payments in the digital asset XRP, the subject of the SEC’s lawsuit against Ripple. The WSJ reveals that the payment solutions company gave MoneyGram about $38 million in 2020 corresponding to “development fees.” In total, the fees accounted for about 15% of MoneyGram’s adjusted earnings.

In 2020, MoneyGram was able to reduce its operating expenses by as much as 56%, largely because of Ripple’s contributions. In the last quarter of 2019, MoneyGram closed with estimated losses of $11.9 million. In contrast, after a year of cooperation with Ripple, at the end of 2020, the company reported a net income of $7.3 million.

Best case scenario to summarize cooperation with Ripple

Due to the above, MoneyGram expects its next earnings report to be negatively affected. However, its CFO, Larry Angelilli, stated that they are pursuing “alternatives” with Ripple to continue the partnership.

MoneyGram’s CFO stated that the best scenario for the company would be for the case to obtain a favorable resolution for the payment solutions company. Despite this, Angelilli acknowledges that the lawsuit could receive a verdict after a long time with the possibility of an appeal of the outcome.

In recent statements, Ripple said they are optimistic the outcome of the lawsuit will “bring clarity to the regulatory treatment of blockchain technology and digital assets” in the U.S. jurisdiction. In that regard, one favorable point for the lawsuit is the incoming SEC Chairman Gary Gensler’s swearing-in. Known for his “pro” cryptocurrency stance, there is speculation that the parties may be able to reach a settlement when he takes office. Gensler’s confirmation hearing date has been penciled in for March 2021.

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