Looking Below the Surface of the Ripple Labs & Moneygram Partnership
Imagine the border between the United States and Mexico. To cross the border illegally one must brave the wilderness, possibly death from dehydration or even a wild predator’s attack may prevent one from making it safely across. Now, imagine a freshly paved superhighway with easy access. This highway would be utilised by honest citizens. In time, nefarious activities will make their way onto the highway. Ripple labs is doing just this with their recent investment in Moneygram.
Rewind 10 years ago and Moneygram’s stock was hovering in the triple digits and was a darling of wall street and hedge funds. Then the government came in to monitor Moneygram’s activities due to their weak fraud controls. Coupled with the emergence of competition from easy to use online and app payment offerings such as Venmo and Moneygram’s business shriveled up and their stock hit $1.
With Moneygram up against the wall, licking their bleeding wounds and facing a gigantic $120m regulatory fine, along comes Ripple Labs with their mountains of money from selling their alternate currency, XRP coin. Ripple purchased 15% of Moneygram. Why did they do this? Ripple saw trading in their alternate currency of XRP coin drying up while simultaneously the price kept dropping. Ripple needed to figure out a way to pump volume into their coin. Moneygram was the perfect target.
With Moneygram’s payment platforms already in place, Ripple labs forced Moneygram to use XRP coin for internal transfers and to open up a secure payment option through Moneygram’s On-Demand Liquidity product offering. The two payment corridors that would be available for this type of secure and anonymous transfer would be Mexico-US and Philippines-US, the two most busy payment corridors with the US. In fact by the end of 2019, Moneygram’s CEO announced that 10% of the US-Mexico transfers were done through the ODL offering.
The ODL offering is the ultimate channel for nefarious activity. From drug payments to every sort of illegal or fraudulent money transfer one could imagine. By not transfering a US Dollar or Mexican Peso, Moneygram is skirting oversight. Moneygram is allowing transfer of an alternate currency that can be liquidated in the local Mexican XRP market within 3 seconds. Drug Dealer 1 can open an anonymous currency wallet and receive payment from Drug Dealer 2 who is also using an anonymous currency wallet. And they can do it thousands of miles apart.