Ripple Inc., the
company behind the XRP digital currency has arranged to invest $50 million in remittance
platform MoneyGram. The funds will help support the
use of On-Demand Liquidity, a global payments product that uses XRP.
With the completion of the deal, Ripple owns just under 10 percent of MoneyGram’s outstanding common stock, “and approximately 15 percent on a fully-diluted basis including non-voting warrants held by Ripple,” the filing said. Under the original deal, Ripple made an initial $30 million investment, while MoneyGram in turn agreed to utilize Ripple’s products for cross-border settlements.
Since June, MoneyGram has begun using XRP to conduct transactions in Europe, Australia and the Philippines, and currently transacts roughly 10 percent of its Mexican peso foreign exchange trading volume, the filing said. MoneyGram will primarily use Ripple’s xRapid service. This system enables inexpensive, instant cross-border payments across the world, reducing the need to hold foreign currency.
Currently, MoneyGram uses traditional means of making cross-border payments. They must hold foreign currencies in multiple bank accounts at all times, which is costly and restricts capital flows.
“This initial success encourages us to expedite expanding our use of On-Demand Liquidity; … I anticipate furthering our growth into new corridors and exploring new products and services.” Said MoneyGram chairman and CEO Alex Holmes.
Making the Case for xRapid
For Ripple, the deal will provide an unprecedented opportunity to make the case that its product called xRapid, which allows for the transfer of XRP, is superior for moving money across borders. Ripple has long argued that banks should use XRP as a form of bridge currency, rather than leaving money tied up as collateral in foreign accounts.
“This will eliminate the need to deploy foreign bank accounts. That’s why
MoneyGram has negative working capital. It will help customers and also smooth
out their treasury operations,” Said Ripple CEO Brad Garlinghouse.
Garlinghouse claims that hundreds of partners are now using XRP, which has implied value of about $18 billion and is the third most valuable cryptocurrency after Bitcoin and Ethereum. He added that this has produced a highly liquid supply of XRP, meaning that the risk of volatility is all but eliminated since financial firms can move into and out of the currency almost instantly.