MoneyGram International (NASDAQ: MGI) has become one of the most interesting and controversial companies around because of Zhejang Ant Small and Micro Services’ interest in it. Ant, which is considered one of the world’s most valuable unicorns, has offered $1.9 billion for MoneyGram.

The offer is generating controversy because of the relationship of Ant and its former parent company, Alibaba (NYSE: BABA) to the Chinese government. The acquisition has raised somewhat hysterical fears that Chinese spies would be able to use it to track U.S. military movements and identify targets for bribery through data provided by MoneyGram.

The basis of the concerns is estimates that around 15% of Ant is owned by a sovereign wealth fund controlled by the Chinese government. The rest is apparently controlled by Alibaba guru Jack Ma who intends to take it public sometime in the near future. Note: Ant itself denied this and claimed that only 5% of it was owned by the government.

Are Ant Financial and MoneyGram a Threat to National Security?

The worries are based on the large number of MoneyGram outlets located near US military bases, The San Diego Union Tribune reported. Service members and their families often use MoneyGram to wire funds to friends or families or pay bills.

Obviously the best solutions for such worries would be to increase military pay or set up some sort of secure free banking and money transfer system for the armed forces. For example use a blockhain-based cryptocurrency; such as Ethereum to pay troops and move their money around. Unfortunately instead of such answers we get a nonsensical debate on whether the US government should block to the MoneyGram sale for “national security reason.”

The danger that spies might hack MoneyGram; or bribe its employees to steal data, is ignored. My personal guess is that the data on MoneyGram wiring by US military personnel is already on computers in Beijing and Moscow, so the national security danger would exist no matter who owns MoneyGram.

Why does Ant want MoneyGram anyway?

National security concerns aside buying MoneyGram would be a pretty smart move for Ant. It is the next logical step in Ma’s effort to build a global financial services empire similar to that operated by PayPal Holdings (NASDAQ: PYPL).

Here’s some of what Ant would get for its $1.9 billion investment:

  • 630 million global customers.

  • 347,000 money-wiring outlets in 200 countries.

  • Revenues of $1.63 billion.

  • A net income of $16.4 million.

  • A free cash flow of $11.3 million.

  • Assets of $4.597 billion.

  • Cash and short-term investments of $157.2 million.

  • $118.20 million in cash from operations.

  • An enterprise value of $1.840 billion.

All this makes MoneyGram a very questionable investment because it does not generate that much cash or float for a financial services company. One reason for that is that it does not lend money and serves mostly working class customers.

This of course raises the intriguing question of why does Ant Financial want MoneyGram? It also raises the question why a competing financial services organization Euronet Worldwide (NASDAQ: EEFT) is willing to pay $2 billion for MoneyGram.

Here’s Why Euronet and Ant want MoneyGram

The answer relies in the worldwide remittance market. Immigrants sent $431.6 billion to friends and relatives back home in 2015, The World Bank reported. That figure was up slightly from $430 billion in 2014.

Wire transfer is one of the main means of remittances and both Ant and Euronet want a piece or a bigger piece of that market. In particular Ant wants a chance to integrate some of its products; such as its Alipay digital wallet and micro loans, with MoneyGram’s system.

Examples of products it could offer include a MoneyGram app similar to Apple Pay; but based on the Alipay technology, and microloans to MoneyGram customers. Another possibility would be a system similar to PayPal’s Xoom that would allow a MoneyGram customer in Denver to send cash directly to a digital wallet on his mother’s phone in Guatemala.

Such a solution would eliminate one of the biggest drawbacks to the traditional money wire system. Today to get her money the mother in Guatemala might have to walk to the MoneyGram office to pick up cash. That’s time consuming; and potentially dangerous, because the local gangster or corrupt police officer might be outside the office waiting to take mother’s cash.

Another reason Ant would want MoneyGram is to expand its presence in North America. That would limit its vulnerability to problems in China and help it compete with PayPal. MoneyGram products are sold through many large US retailers including Walmart, and supermarkets.

MoneyGram is a Lousy Investment for You

Naturally many people will be wondering if this makes MoneyGram a value investment. My answer would be no because it generates very little float, the only reason to buy a financial services stock is float, it is not there at MoneyGram.

Nor did investors get much else for their trouble, MoneyGram pays no dividend and it punished shareholders with a -4.07% return on equity on December 31, 2016. Therefore MoneyGram might be smart investment for Ant Financial or EuroNet, but it is a lousy investment for the average person.

Once again if you are planning to invest in a payments solution, buy PayPal; because it makes money and generates a lot of float. Stay away from MoneyGram because it makes little money.

This article originally appeared at Market Mad House.

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