A United States Securities and Exchange Commission (SEC) 8-K filing by remittance processor, MoneyGram, has revealed that Ripple has been injecting a significant amount of funds into the business since its investment in the company in June 2019.
But according to a report from the Financial Times, Feb. 28, until consulting with the SEC, MoneyGram had been classing these cash flows as revenue.
Benefits reclassified as contra expenses
The filing revealed that in the third and fourth quarters of 2019, Ripple had input $11.3 million into MoneyGram, in what was described as “Ripple market development fees.”
It went on to state that these funds had previously been included in revenue figures. However, after consulting the SEC, MoneyGram reclassified the $2.4 million in Q3 2019 and $8.9 million in Q4 2019, as contra expenses. The filing states:
“At the time the Company issued fourth-quarter guidance, it assumed Ripple market development fees would be accounted for as revenue, consistent with the third quarter treatment. As a result of the change, the Ripple financial benefit … is now accounted for as offset to operating expenses, in Transaction and Operations Support and is no longer included in revenue.”
Compensation for bringing liquidity to market
In a recent 10-K filing to the SEC, MoneyGram explained in more detail what these Ripple market development fees, paid in XRP, represent:
“The Company is compensated by Ripple in XRP for developing and bringing liquidity to foreign exchange markets, facilitated by the ODL platform, and providing a reliable level of foreign exchange trading activity.”
When asked in a previous interview whether organizations received incentives to sign up with Ripple, CEO Brad Garlinghouse, said that “it depends upon the shape and size and type and how high a priority” they are.
At the same time he admitted that Ripple “would not be profitable or cash flow positive [without selling XRP], I think I’ve said that. We have now.”