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Alibaba's Ant Financial Buys Moneygram in Play for US Expansion

Deal opens path into US via unbanked population

January 30, 2017 | Retail & Ecommerce

Ant Financial Services Group, an Alibaba affiliate and operator of China’s dominant digital payment service Alipay, agreed to purchase US payments company Moneygram in a deal worth $880 million.

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Ant Financial’s acquisition of Moneygram is not its first foray into the US market, having purchased biometric security company EyeVerify in 2016 for an estimated $100 million. But it does reflect the company’s ambition to reproduce Alipay’s success in the US and beyond.

Moneygram’s business is largely focused on peer-to-peer transfers that often take the shape of cross-border remittances, but also allows users to get money orders and pay bills if they lack a bank account. The company says its money transfer network consists of 2.4 billion bank and mobile accounts and 350,000 physical store locations in more than 200 countries and territories. The firm has made serving the unbanked and under-banked the cornerstone of its business, providing services to consumers who don’t have traditional bank accounts.

That business focus aligns closely with Alipay’s growth strategy, which has relied on onboarding similarly underbanked customers in China by letting them leapfrog traditional retail banking for digital payments services accessed on a smartphone. Alipay has seen great success with its approach, reporting that some 450 million people use its service in China. In that market, it faces fierce competition from Tencent’s WeChat Pay offering, which is tightly integrated with the eponymously named—and massively popular—messaging service.

The Moneygram acquisition appears to open a path in the US that is similar to the one Ant followed in China—serving the underbanked population.

That particular market in the US is considerably smaller than the one Ant tapped in China. According to the Federal Deposit Insurance Corp., 7% of US households were unbanked in 2015, the latest year for which data is available.

Still, it’s a large enough market to allow Ant to get a foothold in the US, and without having to immediately take on big, well-established players like Apple Pay and Google Wallet, which have largely focused on a different market segment so far—those who already have bank accounts and credit cards.

Ant Financial is also looking beyond the US to grow its digital payment and banking services. In a press release announcing its acquisition, it noted that Moneygram’s services also overlapped with those offered by Indian digital payments service Paytm, in which Ant Financial holds a stake. Like Alipay, Paytm also grew its use base in India by attracting customers with access to traditional banks.

Moneygram’s presence in several other markets may also give Ant Financial a strategic advantage in expanding beyond the US. Ant Financial CEO Eric noted in a statement, the company hopes its acquisition will “provide greater access, security and simplicity for people around the world to remit funds, especially in major economies such as the United States, China, India, Mexico and the Philippines.”

Rahul Chadha

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