The exciting world of fintech is typically associated with young, disruptive companies upending the old guard. MoneyGram International (NASDAQ:MGI) is an exception to this rule.

MoneyGram is one of the largest cross-border money-transfer businesses in the world, helping people in more than 200 countries send and receive cash. With a business model that's focused on a network of physical locations staffed by local agents, MoneyGram is perceived to be a company in decline, less convenient and innovative than its rising fintech competitors. However, the company has launched a fintech business unit of its own called MoneyGram Online, which has been growing like a weed and represents the future of the company.

Digital remittances

It's common for immigrants and migrant workers to send money -- known as remittances -- back to family in their home countries. Remittances have typically been transacted in cash transfers, sent from a retail location in the U.S., like Walmart, and picked up in the receiver's country at a local retail store or bank.

As the world moves away from cash, digital remittances are gaining traction, and MoneyGram is a key facilitator. MoneyGram's mobile app lets senders fund transactions with their bank accounts or debit cards, with the option of letting receivers pick up in cash or having the money deposited directly into their own bank accounts.

Due to various developments on both the send and receive sides, including the widespread adoption of smartphones and improving financial systems in recipient countries, digital has become a popular option. In just the United States, digital remittances now account for more than $16 billion in annual transaction value -- or 29% of the total transaction volume -- and digital-remittance volumes are growing at a double-digit rate.

With a strong offering for digital remittances, MoneyGram is well-positioned for the future of the industry.

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This rise of MoneyGram's digital service

MoneyGram started its digital push in 2018 with the launch of its mobile app. The app's availability has grown tremendously in just a few short years, from 15 countries to over 90. The MoneyGram mobile app appears to be resonating with consumers. It has a rating near 5 stars with over 200,000 reviews in Apple's App Store.

The proof of MoneyGram's success can be seen in its financial reports. In the first quarter of 2021, the company reported digital transaction growth of 86% year over year. This translated into $60.4 million of digital revenue, which represented 19.5% of the company's total revenue for the quarter. The real kicker is that the company expects the digital business to exceed the legacy local-agent money-transfer revenue by 2024.

In addition to peer-to-peer money transfers, MoneyGram has established partnerships with other financial companies to enable them to use the company's payment infrastructure to transfer money for their own customers. MoneyGram calls its "B2B" model MoneyGram as a Service, and has already announced nine partnerships with companies including Coinme, a cryptocurrency service, and Sigue, a competing money-transfer business.

MoneyGram Online is growing rapidly, which is showing that the company has really pivoted from its legacy business model of being a local-agent-based money-transfer business to a digital-payments business. Investors should start to rethink how they understand the company and value the stock.

Valuing MoneyGram's digital business

There are interesting implications for what MoneyGram's transition means for its business valuation. Legacy money-transfer businesses such as Western Union and MoneyGram have historically traded at much lower valuations, compared to pure-play digital-payments businesses such as PayPal and Square.

SQ EV to EBITDA Chart

SQ EV to EBITDA data by YCharts.

MoneyGram has a similar valuation multiple as Western Union. The company will stand to benefit if the market decides that it looks a lot more like a new-age digital-money fintech rather than a stodgy old financial services company. It's unlikely that the market will suddenly change its mind on the stock overnight, but the valuation multiple has room to increase over time.

There are also private fintech start-ups that show that MoneyGram's digital business could be considered a "unicorn" trapped inside a legacy business. For example, Remitly and WorldRemit are two private remittance companies founded in the last 10 years. Each have private market valuations exceeding $1 billion, making them "Unicorns." We don't know how much revenue these companies generate because their financials are not public, but it's fair to say that their business models are very similar to MoneyGram Online.

Putting it all together, there's an interesting argument to be made that MoneyGram's digital business is not fully appreciated by the stock market. That perception could change as the digital business continues to grow and if/when it becomes a majority of MoneyGram's revenue.

The market could also wake up to the value of MoneyGram's digital business if its private competitors were to do initial public offerings (IPOs) with more robust valuations. Either way, MoneyGram's hidden unicorn is an interesting fintech asset that could help justify a higher stock price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.