SINGAPORE (Jan 21): Ripple, a remittance system built upon blockchain technology, is set to revolutionise the way money is being moved across borders. Promising a faster, more secure and cheaper way of remittance, Ripple is said to provide a “frictionless money remittance experience for users”.
“Using Ripple software for remittance is no different from what is going on now, as banks have always been trading with each other. It’s just changing the software they do remittance with,” says Cory Johnson, chief market strategist for Ripple, in an exclusive interview with The Edge Singapore.
As companies expand overseas, they have to set up bank accounts in the respective countries they do business in and put money in them, as they cannot rely on traditional remittance methods to quickly transfer the money over when needed.
For 45 years, financial institutions and banks have depended on financial messaging provider SWIFT to handle cross-border payments. SWIFT now remains the market leader in the remittance industry, handling half of the world’s high-value cross-border payments. It is run as a cooperative owned by thousands of member financial institutions and banks.
SWIFT uses a relatively ancient correspondent banking system, though. Many have complained that payment transfer via its global payments innovation (gpi) is slow, expensive and opaque and requires manual intervention by banks. In addition, only about half of the payments sent via SWIFT gpi are credited to the beneficiary in less than 30 minutes, while the remaining messages are delayed because of errors in payment data.
Faster, cheaper, safer?
To solve the speed problem, Ripple has rolled out xRapid, which uses its XRP token to create liquidity. XRP is currently among the top five traded cryptocurrencies in the world. Transactions involving XRP take only a few seconds compared with Bitcoin, which takes about 20 minutes.
The reason is that, unlike Bitcoin, XRP is not being mined. When XRP was set up, 100 billion units were created and no more XRP was created after that. Ripple currently owns about 60 billion units of XRP to power its xRapid product, while the rest of the 40 billion units are owned by others, such as investors or businesses that are developing their technology on XRP. These 100 billion XRP units, relative to the 21 million Bitcoins in total, have better liquidity.
From the perspective of big financial institutions, better liquidity is a key advantage. Payments, especially to parties in emerging markets, often require pre-funded local currency accounts around the world, resulting in high liquidity costs. With xRapid, payment providers and financial institutions are able to dramatically lower the capital requirements for liquidity, as it uses the XRP token to provide on-demand liquidity.
In addition, a single transaction on xRapid takes only a few seconds to complete, regardless of the origin or destination of the fund. Transaction fees are significantly lower as well, says Johnson. “Using Ripple software, you are exposed to XRP for just mere seconds and, in that few seconds, the volatility is very small, compared with traditional remittance, where the money [would be held] for days, thus exposing it to the possibility of volatility for a longer period,” he says.
To be sure, SWIFT, the incumbent, is not sitting still. On Sept 12, 2018, it introduced a pre-validation service, which relies on secure application programming interfaces (APIs), predictive analysis and artificial intelligence, allowing its customers to detect and resolve errors that delay payment messages before they are dispatched and enabling banks to provide upfront fee transparency to their end-customers.
Singapore start
With more buying and selling done online and across borders, the business of cross-border fund transfers is seen as a growth area. According to the McKinsey Global Payments 2016 report, the payments industry outperformed most financial services sectors in 2016 because non-banks stepped up their pace of innovation.
McKinsey believes constant development in the open banking and e-commerce ecosystem will fuel significant disruption in the coming years. Thus, financial institutions have no choice but to jump on the fintech bandwagon.
In September 2017, Ripple set up an office in Singapore to engage key financial centres in the region to develop blockchain as well as to support its rapidly growing customer base across Asia-Pacific. They include Standard Chartered, a Ripple investor and member of the RippleNet Advisory Board.
Within year, RippleNet went “live” in more than 40 countries across six continents. RippleNet is Ripple’s global network of banks and financial institutions that provides real-time messaging, clearing and settlement of payment transfers, offering corporations and small and medium-sized enterprises (SMEs) a quick and hassle-free service of transferring money to several destinations.
In 2018, Ripple’s customer base grew more than 100%, signing up an average of two to three new production customers a week across its suite of products. Ripple also saw a 350% increase last year in the number of customers who sent live payments.
On Jan 8, Ripple announced that 13 new financial institutions had signed up for RippleNet, bringing its total number of such customers to more than 200. The companies include Euro Exim Bank, Ahli Bank of Kuwait, ConnectPay, Olympia Trust Company and Rendimento. “The places where we’re going to be biggest in is where it is most difficult to move money,” says Johnson.
Creating transparency on remittance costs could help increase the money sent back to low- and middle-income countries by between US$15 billion ($20.3 billion) and US$20 billion, according to a report by McKinsey and the Global Migration Data Analysis Centre of the UN Migration Agency’s International Organization for Migration.
The report, titled “More than Numbers”, also showed that the lack of transparency on transaction fees is the single most important factor leading to high remittance costs.
“Using Ripple software and XRP, you can send 50 cents for virtually zero fees. And this can help create economies in which there aren’t economies now just because the current money transfer system is not sophisticated enough,” says Johnson.
Going global
On Oct 1, 2018, Ripple announced the commercial availability of xRapid with multiple customers. For the first time, XRP would be used in commercial payments by financial institutions such as MercuryFX, Cuallix and Catalyst Corporate Federal Credit Union.
With the collaboration, foreign workers will be able to send more money home, given lower fees, while companies can move more money into countries that need it. At present, Ripple is collaborating with more than 100 financial institutions to implement its solutions and improve the payments transfer system.
Apart from xRapid, Ripple has also developed other products that help facilitate quicker and more stable payments transfer. For instance, Ripple’s xVia is targeted at corporates, payment providers and banks that want to send payments across various networks using a standard interface. It boasts a simple API that requires no software installation. With xVia, users will be able to send payments to any part of the world seamlessly and transparently. Payment information such as invoices can also be attached.
Meanwhile, xCurrent is Ripple’s enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end tracking. By using xCurrent, banks can message each other in real time to confirm payment details prior to initiating the transaction and to confirm delivery once it is settled. xCurrent also includes a rulebook developed in partnership with the RippleNet Committee that ensures operational consistency and legal clarity for every transaction.
‘Crypto heaven’
Asked whether Ripple faced regulatory difficulties in bringing its product to Singapore, Johnson says, “Singapore is ‘crypto heaven’. It is really focused on allowing companies to develop using blockchain technology.
“Singapore has taken a very forward-looking approach to blockchain and crypto, and with that, it is getting the results of some of the best cutting-edge technology, including using Ripple to move money across borders.”
Ripple has had early talks with the Monetary Authority of Singapore to use its product as part of the MAS blockchain experiment in cross-border payments, but a deal has yet to be firmed up.
In November, Standard Charted launched a real-time cross-border payment service for corporates using xCurrent. In partnership with Axis Bank in India, the banks will use Ripple’s product to send Singapore dollar payments from Standard Charted clients in Singapore to accounts in India’s Axis Bank. With this service, the banks can easily track for delays of payments, as well as the fees incurred during the transfer.
Last February, Singapore-headquartered InstaRem, Southeast Asia’s leading digital cross-border money transfer service provider, partnered Ripple to facilitate quick and secure payments for Southeast Asian RippleNet members with xCurrent.
“We’re excited to work with InstaRem to solve the global payments problem, and the impact it has on emerging markets,” said Patrick Griffin, head of business development at Ripple, in a media release issued on Feb 21, 2018. “Whether it’s a teacher in Singapore sending money to his family in Thailand, or a small business owner in India trying to move money to open up a second store in another country, it’s imperative that we connect the world’s financial institutions into a payments system that works for customers, not against them.”
For now, Ripple will focus its efforts on marketing and improving on its current products, instead of coming up with new ones. Johnson maintains that the company will continue to focus on using blockchain technology to transfer money across borders.
