US public company Euronet, worth over $4bn, owns three prime brands in the money transfer space. Ria (focused on remittances), HiFX & XE (focused on international payments). Yesterday, Euronet announced their 2018 Q2 results.

While the company is certainly focused on their ATM network, money transfer is a huge and growing part of their long term strategy. The division contributes to more than a third of Euronet’s revenue and profits.

Last year, the focus of all conversations about Euronet was their bidding war with Ant Financial for MoneyGram. Whilst their lobbying helped put a stop to Ant’s bid, they were unable to acquire MoneyGram in the process.

2017 saw $38.8bn of FX flow for Euronet’s money transfer business putting them around half the size of Western Union. Their agent network at 355,000 locations is now second only to Western Union. Euronet’s overall profits for Q2 are up 7% with growth rates for the money transfer segment of 21% for revenue and 31% for operating income, as compared to the same quarter last year. What’s driven this growth and where is Euronet poised to go next?

Growth by acquisition

Euronet has grown in the space via three key acquisitions. The first was the remittance business of Ria back in 2007 for $380m cash plus stock. In 2014, it added HiFX to enter the higher value payments space and in 2015 acquired the currency website XE to provide a further platform for growth.

Euronet has generally been a success story, outperforming both the S&P 500 and other competitors in the space. Although money transfer is only around 1/3 of the business, it has been a driving force of growth and profitability.

What does the future hold for the money transfer segment?

Will money transfer continue to be a focus of growth?

As highlighted above, Euronet’s growth rates were well above average for the sector. When asked during their earning call on Wednesday, the company attributed a large part of their growth to a long term money transfer strategy, commenting,“This is not one exceptional quarter, this is the payoff of continuous dedication to growing our money transfer network and a commitment to compliance.” Michael Brown, Chairman, President, CEO

How much can XE’s brand power their international payment business?

Euronet first had to unwind a third party relationship with XE before they were able to integrate HIFX’s payment platform for XE’s money transfer offering. Now a move is underway to re-brand much of HiFX’s business to the XE brand which saw 300 million visitors across its sites in 2017. In the foreign exchange world, XE has a brand awareness far above that for HiFX. The question though is whether the brand associations from XE (essentially a currency converter) will translate to awareness of international payments products.

Can Ria challenge Western Union’s dominance?

Much like Western Union, Ria’s growth is being driven in part by a growing digital presence that benefits from the scale and payout network of its owner. Adding MoneyGram would have been a quick route to growth, although Ria’s focus on Europe and Asia is different to Western Union’s dominance in Africa. With UAE Exchange the only other player with substantial scale in the remittance space and MoneyGram for now remaining independent, it appears the path to scale will remain a largely organic and therefore slower journey.

Will Euronet partner or compete with fintechs to grow its digital market share?

Two competing themes also emerged from the call. Euronet’s CEO announced digital transaction growth of 47% and stated his belief that this is still scratching the surface of their digital market share. Euronet also announced a deal with the US grocery chain Kroger launching its platform as a service product for its epay service. But with the network Euronet has and their globally compliant platform, the best fit for platform-as-a-service may well be in the money transfer segment with the CEO stating a number of Fintech partnership discussions to utilise this have begun.