Blockchain has been a disrupting force for the financial industry over the last few years. One of the best use cases of the technology is global inter-bank payments. In this context, a San Francisco-based blockchain company – Ripple – is transforming how international payments are done today. Over a 100 banks across the globe have partnered with Ripple to use its technology for inter-bank payments, including Yes Bank, IndusInd Bank and Axis Bank from India.
“Ripple has created a superhighway on which multiple currencies can travel, be it traditional fiat currencies issued by central banks, or cryptocurrencies. Using our technology, banks and other financial institutions can increase the velocity of their transactions and save a lot of costs on remittance. It only takes about 4 seconds to complete the transaction and the end-to-end cost is a small fraction of the funds,” says Naveen Gupta, Head of Ripple India.
XRP- digital asset for the Ripple platform
Ripple uses its native digital asset for settling transactions. Although it is the third largest cryptocurrency in market capitalization, investors have been unclear about its actual use on the platform. According to the company, its currency can play a crucial role in global payments by providing real-time liquidity to customers. It acts as a bridge currency.
“XRP is a digital asset that is specifically designed for international remittances and acts as a bridge currency. Today across banks, there are about 23 trillion dollars that are parked in liquidity pools. Using XRP, liquidity can be provided on demand, and free up that money lying dormant,” explains Gupta.
If SWIFT is like a fax machine, Ripple is like WhatsApp
Experts have been comparing Ripple with today’s prevalent inter-bank remittance system, managed by The Society for Worldwide Interbank Financial Telecommunication (SWIFT) that connects about 11,000 financial institutions. They state that Ripple could soon take over the market due to higher speed and cost-saving features. Also, the SWIFT infrastructure has been exploited to carry out banking frauds and scams over the years, which can be secured using a blockchain payments system like Ripple.
“The easiest way to contrast between the two would be to compare a fax machine with an instant messaging app like Whatsapp. Today, when you send money from one country to another, you would almost lose a significant percentage of money just in the transmission itself and it takes about 2-5 days. Also there could be operational errors in the process. Using Ripple, any information that one bank sends to another gets validated quickly, unlike the current system which may take days, while reducing any operational errors. The settlement is instant and there is no lag. The transaction information is highly secure with peer-to-peer encryption that goes from one bank to another on the blockchain platform. The ledgers of banks get matched automatically.”
Delivering an internet of value
Ripple aims to develop an internet of value and help its customers reduce the friction present in today’s payments infrastructure. The response so far has been quite positive, particularly from several Asian countries such as Japan, Korea and India. According to the company, adoption will rise as financial institutions continue to struggle with traditional remittance systems.
“Ripple aims at delivering an internet of value. We have created a benchmark in customer experience and adoption will rise as more customers see the power of the platform. Particularly in a place like India where global remittances are on the rise and workers keep sending money to their homes from abroad, Ripple will see adoption to reduce the friction in payments,” says Gupta.