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This week - Citi, Finablr, Ria, Mastercard, MoneyGram, N26, Nium, RBS, Revolut, Travelex, Western Union, Visa
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New data, new insights on cross-border payments. Every week.
 
Covid-19 is more important than anything we write about here. Stay healthy and our thoughts go out to all those affected, especially those who have already suffered loss.

Quarterly results season is in full swing and Western Union and MoneyGram posted their numbers this past week. Some of the results were positive, but most were not. More on that below.

Visa and Mastercard also reported results, with both beginning to feel the pain of the mass reduction in travel and not enough uplift from e-commerce. 

And finally, what the ******** is going on at Finablr? Seriously, uncovering $1bn of hidden debt is impressive but more importantly disastrous.

Plenty of digital growth but is it enough?

Until mid-March, the first quarter of 2020 was ticking along quite nicely for both MoneyGram and Western Union. MoneyGram was even tracking at 6% year-on-year growth.

For the full quarter, both companies reported a drop in revenue in their core money transfer businesses on account of Covid-19, pulled down by very challenging end of quarter numbers which have continued into April.
Remittances remain an essential service for many consumers around the world even with the overall declines in the market. New customers acquisition via digital is supporting revenue at Western Union and MoneyGram, who reported 13% and 17% digital growth, respectively. Not bad, but a long way behind the growth of digital only players such as Remitly, who reported a 40% jump in transactions value and 100% customer growth from February to March. 

It's clear though that the digital growth was not enough to prevent a decline in the companies' performance driven by the Covid-19 crisis. 

Western Union - faring slightly better than expected... but only for now
  • Consumer-to-consumer revenue dropped as much as 30% in the final weeks of March, when the effect of Covid-19 became stronger in APAC, Europe and North America and was 21% down in April. Lockdowns in place around the world in fact shuttered Western Union's highest margin products, agent-based cash-to-cash transactions. Although 60% of Western Union's cost base is variable, a continuation of this level of decline through Q2 will be very painful.
  • White label products, and especially the Sberbank and Saudi telecom partnerships, were key growth drivers in the quarter. Within digital, the cross-border segment's revenue grew 23%.
  • The Business Solutions revenue rose 3%, helped by the strong performance of foreign exchange hedging and the currency volatility seen in March. We'd expect that trend to reverse for Q2.
MoneyGram - hanging in there
  • After a positive start of the year, money transfer transactions fell by 18% after mid-March, and the decline was especially strong in the International segment (down 27% year-on-year). April continued the trend with transactions volumes down 19%.
  • On the plus side, transactions in the US outbound segment returned to growth thanks, in part, to the Walmart deal, which reported a better than forecasted performance. Another positive: over 70% of new digital customers are new to MoneyGram (not from the conversion of their own cash based customers). 
  • But MoneyGram is in cash preservation mode. It burned through $16m in cash during the period leaving it with $131m left. Will MoneyGram's revenue withstand the World Bank's projected 20% reduction in remittances through the rest of the year, or Citi's less pessimistic 14% reduction in their worst case? Can MoneyGram renegotiate the $55m deferred prosecution fine? Tough times ahead.
The negative news from both companies is unlikely to be over yet. As Western Union's CFO Rajesh Agrawal puts it:

"The second quarter is likely to be the lowest quarter for us from a revenue and a profit margin standpoint".

And neither company wishes to provide any guidance on the future, especially telling for Western Union. But, to be fair, this is how most of us feel now too. 
Help me improve my margins in the Covid-19 crisis

I just found one billion dollars...of debt

You have to feel for Finablr and, especially, for what must be the vast majority of people working there (many are readers of our letter) who simply might have had no idea what has been going on. 
As for the investors, the lawsuits will surely follow. And the customers of two of the oldest brands in the sector, UAE Exchange and Travelex, will find replacement products if nobody saves these brands. 

What's next? Some form of bankruptcy. But with the holding's complex ownership structure and all the current issues, even those who know these companies well will find them hard to unravel and set them on the right track.
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How Visa and Mastercard are faring

Mastercard and Visa published their quarterly results this past week. While overall net revenue increased for both players in their reporting quarter, the real hits to cross-border revenue started in late March and continued through April.
As we can see, the 2020 Q1 numbers mask the real underlying metrics that many of us have felt and April has shown.

In April, numbers were pretty similar at both Visa and Mastercard: 
  • Travel-related transactions were down around 80%.
  • Card-not present, not travel (i.e. non-travel e-commerce) continued to grow. It went up 10% to 20% in early April and around 30% in the second half of the month.
  • Overall, cross-border was down by around 40-50% in April in both businesses with no clear turnaround yet in sight.
The positive from all this is that, while travel is expected to eventually come back and will be likely similar to before, e-commerce and digital could be very different. As Visa's CEO Alfred Kelly stated in the earnings call:

"I think the cash displacement opportunity in the business as well as the explosion of e-commerce are going to be real structural opportunities that didn't really exist at the same level before COVID-19".
 
Improve your cross-border card margins
On our radar this week:
Curated by FXC Intelligence's Team
Nium closes latest funding round
Visa leads the round joined by BRI. Another example of a stronger company closing funding in harder times.
Dealstreetasia
Revolut looks to buy distressed rivals
Fairing much better than many competitors, Revolut may turn to M&A, especially to add capabilities.
Financial Times
 
RBS winds down digital bank Bo
The digital bank market is maturing and Bo was too late. The question will remain whether big banks can build standalone.
Business Insider
N26 raises $100m
The digital bank adds to its coffers. Performance has been more mixed depending on geography.
Finextra
 

Missed the last few weeks?

Do you need $400m to make it in cross-border payments? (here)
Inside Ebury’s journey to £100m in revenue and break-even (here)
Euronet, Ria and XE Q1 2020 Earnings Analysis (here)
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Stay healthy and stay safe,

Daniel
Copyright © 2020 FXC Intelligence Ltd, All rights reserved.

London New York | Washington DC

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