Ant Financial, the Chinese inclusive finance powerhouse founded by Alibaba Group, and Euronet Worldwide, a U.S. giant in the money transfer game, are in a bidding war over MoneyGram. Financially, this makes sense as the global remittance market is estimated at about US$600B and MoneyGram commands a market share of roughly 13 percent of the world’s largest remittance route, from the U.S. to Mexico.
When two large companies compete to acquire another large company you might hear about it on CNN Money and promptly move on to other thoughts. But this particular news struck me because it touches on three of the (many) insights about the future of financial inclusion that I took away from attending this year’s Harvard Business School – Accion Program on Strategic Leadership in Inclusive Finance just last month.
Big players will increasingly drive the financial inclusion sector moving forward while, in the past, only small companies served the financial needs of the low end market. Microfinance has shown the poor to be a commercially viable customer segment, and as competition heats up, many big financial players are looking for ways to better tap into the commercial potential of new clients at the base of the pyramid. These big players have the deep pockets to innovate, experiment, and take the risks required to figure out how best to serve the billions of people still financially excluded. In addition to Alibaba’s Ant Financial, China’s WeChat, the social messaging app which connects over 800 million people, now allows for money transfers.
Political interests play a much bigger role in the financial inclusion industry than you might realize. This makes sense given that we are working at the nexus of finance and the poor. Still, I was surprised that almost every case we discussed at the HBS-Accion Program had an important regulatory angle which proved critical to the outcome. We discussed examples of regulation done well and also regulation gone wrong – with the latter often closely tied to political interference. The main take-away was that regulators can best allow for innovation by setting out their desired outcomes and then taking a hands-off approach on how financial institutions get there. Most of the regulatory examples discussed at the HBS-Accion Program took place in developing markets, but their learnings hold true in the MoneyGram bidding war. In an era of “America First” rhetoric, there is political resistance to allowing Ant Financial, in which the Chinese government has a 15 percent stake, to buy MoneyGram. Members of Congress have spoken out against the deal.
Data ownership was another hotly discussed issue at the HBS-Accion Program, and it may be an important reason for U.S. political concerns about a Chinese company owning a U.S. money transfer service. If Ant Financial were to buy MoneyGram, it’s reasonable to assume that the Chinese government would gain access to information on American consumers’ finances. At a minimum, such data has the potential to convey competitive advantage. More broadly, data is increasingly seen as power.
In March, Euronet offered to buy MoneyGram for $1 billion, and last month Ant countered with $1.2 billion. MoneyGram’s board unanimously approved the new deal from Ant, but U.S. regulatory approval still needs to be secured, including from the Committee on Foreign Investment, which is tasked with vetting foreign investments into the U.S. and discerning how they might affect national security.
It may seem the MoneyGram bidding war is pretty far away from a week-long program focused on financial inclusion, but the HBS-Accion Program provides a new lens for analyzing some of the most pressing issues facing the financial inclusion industry. It provides an opportunity to take a step back from the day-to-day and think more strategically about industry trends. This year’s HBS-Accion Program brought together 71 executives and other leaders in financial inclusion from leading institutions spanning 30 countries to engage in interactive case studies and peer exchange. Learning from this group of peers and world class facilitators proved immensely enriching.