Ripple Isn’t Making Western Union Transactions Cheaper, Claims CEO | [blokt]

Western Union CEO Hikmet Ersek on Wednesday claimed that using Ripple’s xRapid platform and XRP cryptocurrency hasn’t helped the company lower costs. After six months of experimental adoption, the company has not saved any money. He suggested that it could be too early to judge the platform. Ripple, however, advises that the payment service provider should stop counting costs the traditional way.

A 6-Month Test Brings Neutral Results

Western Union was one of the few early adopters of Ripple’s xRapid platform and its native cryptocurrency, XRP. After six months of initial tests, the company claims that it is yet to receive any financial benefit.

CEO Ersek said that the company hadn’t found the blockchain platform any less expensive than their own legacy system. They use XRP as a conduit coin to transfer money internationally and convert foreign currencies.

He said, “We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests.” He added, “The practical matter is it’s still too expensive,” noting that the company will only adopt the XRP payment system if it proves to lower their costs. He cautioned that the pilot project is “too small” to draw any conclusions about the platform. So far, transfers between two fiat currencies, US dollars, and Mexican pesos, have been tested.

The company uses a 10-digit “money transfer control number” with a code for each sender and receiver. Ersek claimed that the company’s system for its payment transfer is so efficient that they have never found meaningful results in blockchains. He went on to suggest that, in that sense, the company already has a cryptocurrency for more than 30 years.

A Setback for Ripple

The platform has frequently been criticized for bending the rules of digital ledgers and creating a centralized platform, where the company retains a majority of systems’ controls. XRP is the third most valuable coin in the market at over $20 billion despite the current bearish phase. The platform has been touted as a banker’s blockchain, offering several advantages over legacy frameworks and SWIFT — a current international payment method — including lowered costs.

Ripple believes that Western Union doesn’t have the pilot volume to benefit from low costs. According to Senior Vice President of Product Asheesh Birla, the payment giant has sent only ten payments using xRapid to date. He said:

“If they were to move volume at scale, then maybe you would see something, but with 10, it’s not surprising that they’re not seeing cost savings.”

He added:

“They do millions of transactions a month, and I’m not surprised that with ten transactions it didn’t have earth-shattering results.”

Ripple logo. Source: shutterstock.com

He suggests that if the payments are scaled, and all Western Union payments are made via Ripple’s systems, the company could save 50% on costs per transaction. Their foreign exchange costs have been better on average, he commented.

The reason behind zero cost savings is Western Union’s cost calculation methods. Birla explains that they are still adding legacy costs in the traditional way, including offshore staff maintenance costs. These add up over time to nullify the cost savings that xRapid brings to their system. He claims that unless fixed costs are taken out of the calculations, benefits will remain meager.

Ripple Is a Ray of Hope

Mercury FX and Viamericas, two other companies using the xRapid platform, have reported 40 to 70 percent cost savings in pilots, as indicated by Ripple last month. Ersek also believes that they have potential. He states, “I don’t want to kill it,” calling the Ripple team “good people” who are “very innovative.”

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