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Ripple eyeing 'multiple' deals after MoneyGram investment

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Ripple CEO Brad Garlinghouse. Photo: Ripple

The CEO of cryptocurrency company Ripple is working on “multiple” potential investments and acquisitions in the wake of a $30m investment in money transfer business Moneygram (MGI).

“We’re in a very strong position, our business is growing strongly, we have a strong balance sheet, and I intend to press our advantage,” Brad Garlinghouse, the CEO of Ripple, told Yahoo Finance UK.

Garlinghouse said active discussions on “multiple” potential investments and acquisitions were currently underway but declined to give further details.

“Deal are always very, very hard to predict,” he said.

Asked what areas Ripple was looking at, Garlinghouse said: “Anything we can do to accelerate our growth and give us more capabilities that serve customer needs is a good place to be.”

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Ripple is one of the world’s biggest and wealthiest cryptocurrency companies. Founded in Silicon Valley in 2012, the company developed the XRP (XRP) cryptocurrency, which is specifically designed to make international payments cheaper and faster. It now uses the technology to help banks and financial institutions with international payments.

XRP is decentralized and freely traded on exchanges, but Ripple still owns around 55% of the total supply, worth around $13.7bn (although most is locked up in escrow). It sold $250m-worth of XRP in the second quarter alone.

Ripple has also raised $94m from investors including Google, Santander, Standard Chartered, and Silicon Valley venture capital firm Andreessen Horowitz, giving the company a significant war chest.

“We’re probably the largest investor in blockchain and crypto on the planet,” Garlinghouse said. “We’ve publicly announced we’ve made about $500m [of investments] in the space over the last 18 months.”

‘It’ll start to ramp’

A Moneygram logo is seen outside a bank in Vienna, Austria. Photo: Heinz-Peter Bader/Reuters

Talk of further investments and potentially its first acquisition comes after Ripple struck a deal to invest in Moneygram in June. Ripple bought a 10% stake in the world’s second largest remittance company for $30m, with an option to invest a further $20m at the same price over the next two years.

“Moneygram is in a position where it has tremendous assets globally and the public market has not been particularly kind to Moneygram,” Garlinghouse said. “The stock had gone way down and they had some pressure. We felt like we were in a position where we could help them, and they were in a position where they could help us.”

READ MORE: MoneyGram soars 168% from Ripple investment

As part of the deal, Moneygram has agreed to use Ripple’s xRapid product in international payments. xRapid uses the XRP cryptocurrency to help companies manage liquidity when making international payments.

“If you’re the Bank of Oscar and you’re holding £1 and you want to shoot a payment over to Mexico, you buy XRP with the pound, that takes fractions of a second on any digital exchange; you move the XRP to an exchange in Mexico, that takes about three seconds, there’s an exchange in Mexico we work with called BitSo; they now have the XRP, they sell the XRP, and they buy pesos,” Garlinghouse said.

Moneygram announced last week that it had begun using xRapid to move money internationally. Garlinghouse said Moneygram will start with the US dollar to Mexican peso and the US dollar to Philippine peso pairings.

“It’ll start to ramp in Q4 but really we’ll start to see more consequential volumes in Q1,” he said.

High price not ‘an inducement’

The logo of blockchain company Ripple at the SIBOS banking conference in Toronto, Canada in 2017. Photo: Chris Helgren/Reuters

Ripple’s core business is running and maintaining the RippleNet, a digital network for international payments. One of product on the RippleNet is xRapid, which uses XRP as the rails to run international payments on.

However, some of Ripple’s most high-profile clients — Santander, Standard Chartered, and American Express, for example — do not currently use xRapid and do not touch cryptocurrency.

Ripple paid a hefty premium for shares in Moneygram, with the stock rising 168% when the price of the deal was announced. Garlinghouse denied a suggestion that the share price premium was an indication Ripple had to pay Moneygram to use XRP and xRapid technology.

“I wouldn’t characterise it as an inducement,” he said. “Current course and speed, we’re getting more and more customers to sign up and we’re seeing that value. If we want to accelerate that, we have the option of doing things that might be perceived and characterised by some as an inducement.

“PayPal, when it started, the way they incentivised that activity is if you referred people they put $5 in your account and they put $5 in their account. The more people are on PayPal, the more people you can clear payments to. It’s the same dynamic.”

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Moneygram CEO Alex Holmes said on the company’s second quarter earnings call earlier this month that the partnership with Ripple will be a “tremendously beneficial relationship for all parties involved.”

“To the extent that we can partner with someone to push volume, it’s good for them because they don’t have to pre-fund, it’s real-time, it’s cheaper; it’s good for us because this is early days of what we’re doing,” Garlinghouse said.

“The more liquidity there is, that means the spreads get tighter. The tighter the spreads get, the more efficient that corridor gets. The more efficient that corridor is, the more comes through there. So there’s a flywheel that happens and once you get it moving it starts to feed itself.”

Garlinghouse said the high deal price came about because private equity firm Thomas H. Lee partners, which owned just over 42% of the company, didn’t want to sell at market values. Moneygram shares had declined almost 80% in the 12 months before the deal, which likely contributed to the reluctance.

“If we wanted to buy more than a small percentage of the company, it was going to happen above market price,” Garlinghouse said.

‘It starts to feed itself’

While the partnership with MoneyGram is in its early stages, Garlinghouse believes it will have a big impact.

“The Moneygram deal is really one of the first scaled use cases of a digital asset in production,” Garlinghouse said. “This is a big deal. If I were betting now, a year from now the Moneygram deal will have a more consequential impact on the crypto markets than the Libra white paper [Facebook’s cryptocurrency project].”

xRapid volumes increased by 170% between the first and second quarters of the year even before the Moneygram deal came online. Garlinghouse said he expected “over $1bn of xRapid volume” by the end of 2020.

Ripple has signed contracts with over 200 clients globally and is currently signing around two new financial institutions each week, Garlinghouse said. He estimated Ripple would sign around 100 contracts this year, with around 20% likely to involve xRapid and XRP.

“Banks that two years ago told me: Hey we love your technology, we’re thrilled to be working with you but we’re not going to use crypto. I said OK great. Some of those same banks are now coming back and saying hey let’s talk about that because they see the value,” Garlinghouse said.

“It’s cheaper, it’s faster, and it solves a problem on the liquidity management.”

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at@OscarWGrut.

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