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What A Western Union, MoneyGram Merger Will Mean To Africa | Diaspora Community. Welcome Back Home!

What A Western Union, MoneyGram Merger Will Mean To Africa

May 7, 2015

Shares in MoneyGram International, one of the largest money transfer firm s in the world, rallied as much as 41 percent after Bloomberg, citing sources close to the deal, reported that the industry leader Western Union was in “early stage” talks to acquire MoneyGram.

Western Union later denied that such talks were taking place and said the Bloomberg report was “not accurate”, but by then MoneyGram shares had closed 21 percent higher.

The two firm are the largest money transfer companies in the world and account for two-thirds of remittance transfers globally. A merger between them would have created the world’s largest money transfer company with a total global market share of over 20 percent.

According to the Wall Street Journal, MoneyGram has a 5 percent market share while Western Union holds a 15 percent market share.

Marrying the two companies would have meant almost all transfers across the world would be going through one company and would have had profound consequences for competition in the remittance market especially in Africa, where remittances are a very important part of most family incomes and a big source of governments foreign exchange.

“Super Racket”

In a 2014 report by Overseas Development Institute (ODI), a UK-based think tank,  said Sub-Saharan Africa receives nearly $15 billion in remittances from Africans living abroad and pays about 12 percent, or $1.8 billion, of this in transfer fees.

A big chunk of these transfer is channeled through large established firms like Western Union and MoneyGram, while other smaller rivals including WorldRemit, TransferWise and Wal-Mart Stores also get some share of this cash.

Online mobile money transfer service WorldRemit founder and CEO, Ismail Ahmed, said if the deal between Western Union and MoneyGram is approved it would create a “monstrous monopoly” that would affect the way Africans living abroad transfer money back home.

“Separately, these two companies operate what former UN secretary general Kofi Annan calls a remittance “Super Racket”,” Ahmed said in an emailed statement to AFKInsider.

“Their extortionate fees amount to an annual ‘super-tax’ costing Africa alone an estimated $1.8 billion every year. In many corridors, the merger would eliminate the limited competition that currently exists,” he added.

Facing stiff competition

Traditional money transfer avenues have come under stiff competition in recent years from competitors that are using alternative technology such as Bitcoin transfer and mobile money remittances — increasingly becoming popular in Africa — to reach the consumers at much cheaper costs.

Services such as online money transfer, using Bitcoins  or in other form, have picked up over the last half decade with companies like WorldRemit reaching over 250,000 money transfers per month.

In the face of such competition offline firms like Western Union are looking for ways to maintain their market dominance and mergers and acquisitions are always on the card.

MoneyGram, which made a loss last year, was in the market looking for a buyer in 2013 but rejected offers from interested parties like Euronet Worldwide, Carlyle Group and TGP Capital, Bloomberg reported.

“Online services such as WorldRemit are drawing away their customers with greater convenience and honest pricing, but more than 95 percent of remittances are still sent offline, primarily through these two companies,” Ahmed said.

“We call on regulators to block this deal unconditionally – in the interests of migrants and expats around the world who rely on international money transfer services to support friends and family in their homelands.”

Source: AFK Insider

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