Ripple is the name of a blockchain network striving to transform the banking industry into a more internationally connected system. The company has launched the RippleNet, which promises to be “One frictionless experience to send money globally.”
Basically, by partnering with Ripple for cross-border payment settlements, banks and merchants are able to send money anywhere in the world with fewer wait times, significantly lower fees and more transparency on a network that’s extremely robust against hacking attempts.
As far as cross-border payments are concerned, let’s see if Ripple is making a ripple.
THE CURRENT STATE OF CROSS BORDER PAYMENTS
Every day the world becomes more interconnected. As a consequence, the high cost and opacity of sending money across borders are becoming a growing problem for merchants globally. McKinsey released a report in June 2016 outlining the high transactional revenues generated from fulfilling cross border payments. According to the McKinsey Global Payments map, 20% of the transactional volume is across the border, yet the fees generate 50% of the revenues. If cross-border transaction fees were brought down to domestic rates, the banking industry would experience a loss of $230 billion globally. Which is to say, there is not much incentive for innovation.
However, there is growing pressure being put on the banking industry. With the rise of e-commerce not slowing down any time soon, more consumers are experiencing the inconveniences of sending money around the world. It used to be assumed that when you send money to another country, there are going to be long wait times and incredibly high fees. These expectations are now being challenged by competitors like SWIFT and Ripple.
WHY RIPPLE IS ONE HELL OF A SOLUTION
In the world of fintech, there are two upcoming players as far as business to business cross border payments are concerned; SWIFT and Ripple. SWIFT uses a traditional messaging software to promise its clients full transparency and same day fulfillment. This software is becoming industry standard as more than 10% of business to business transactions in 2017 were completed through SWIFT. Not to mention, more than 150 banks have already signed up.
So where exactly does this leave Ripple? Welcome xCurrent, a product launched by Ripple as an alternative solution for banks and payment providers to process cross border payments. The benefits of xCurrent include full transparency, a real-time financial messaging system, transactions completed within seconds, seamless integration with banking software, and perhaps the most transformational aspect is the ability to process payments in any currency.
To drive the point home, for a merchant to process a payment through a bank, the bank has the ability to instantly relay the fees and foreign exchange charges applied, which can then be relayed instantly to the consumer. This is in sharp contrast to the uncertainty of fees when it comes to traditional cross-border payments. Streamlining this process could potentially raise the ceiling for e-commerce in the future. Imagine a world where you can securely purchase anything from anywhere…
THE HYPE TRAIN
Ripple has already been championed by several banks around the world. One notable name from the list is Santander, which in October 2018, became the first major UK bank to facilitate cross-border payments using the Ripple network. Santander has actually launched an app that runs on Ripple and allows clients to make cross-border payments. This sets a big precedent for the future of cross border banking and legitimizes the Ripple as a competitor to SWIFT.
American Express is another giant that has shown interest in Ripple. Amex released an article citing McKinsey’s warning to banks and the need to innovate the current cross-border payment infrastructure. They even compare the two current solutions available; SWIFT and Ripple. It is clear from this report that SWIFT, although promising in terms of a convenient and transparent solution, is still second to the immediacy and foreign exchange conversion technology backing Ripple. Which is why Amex has thrown a bone to Ripple by recently employing xCurrent to facilitate their cross-border payments.
All in all, promises of blockchain tech ushering in a new age of international banking have long been on the minds of crypto enthusiasts. It is clear that cross-border payments are a major hurdle in this increasingly connected global economy. There is already pressure on banks to transform the financial world to better cater to the needs of a monolithic, on-demand international economy. Consequently, the rise of Ripple in the cryptocurrency markets is a direct result. Ripple now ranks as the coin with the second largest market cap, which in part is due to the extremely comprehensive, and easily accessible solution they can provide merchants and payment providers around the world. From lower fees to no more backlogs exchanging currencies at various rates, Ripple and the products it offers are paving the way for the next generation of international banking.