The jockeying for cross border-payments continues, and SWIFT and Ripple continue to dominate the headlines.
At heart of the matter, of course, is the place (or choice) of using distributed ledger technology (DLT) to underpin the transactions — especially B2B transactions.
As noted, SWIFT has rolled out its gpi (short for global payments initiative). Ripple has xRapid, its cross-border payments solution.
News came over the weekend that the World Bank has cited Ripple’s xRapid technology as a potential gamechanger, but there are other options out there, too, converging on a single theme: That technology can improve the way remittances are done.
A blog post co-authored by Rodrigo Mejia-Ricart, research and public policy analyst at the United Nations; Camilo Tellez, head of research and innovation at the Better than Cash Alliance; and Marco Nicoli, senior financial sector specialist at the World Bank said B2B transactions are at present “slow and opaque” as they rely on third parties to help facilitate payments. Thus, costs are high and speeds are less than optimal.
Consider the fact that current processes involving funds making their way across borders must navigate the vagaries of time zones (and hours of operation) and also navigate across several banks.
“These shortcomings make the cross-border payment industry ripe for disruption and innovation. Some see distributed ledger technologies (DLT) as having the potential to drive industry-wide change. Indeed, B2B cross-border payments, traditionally characterized by fragmentation and opacity, are a potential use case for the successful implementation of DLT,” said the authors in their post.
By way of quantification, the authors stated there is work to be done in trimming those costs. The average global remittance (overall) cost stood at 7 percent as of Q4 2018 — 4 percent higher than the 3 percent target set in the Sustainable Development Goals for 2030.
As a result, DLT can lower costs, and boost transparency, in part by eliminating the need for a correspondent banking relationship.
The blog specifically called out xRapid as a solution now being tested in real world cases. Through pilots, the company has said, costs have been reduced on FX by as much as 40 percent to 70 percent. The movement to embrace DLT for far-flung transactions is hardly an isolated effort. As the authors also stated, SWIFT has a distributed ledger proof of concept ongoing.
In reference to the latter initiative, the SWIFT proof of concept, the messaging network said earlier this year that the endeavor would look to trial a gateway that links trade and eCommerce to gpi. That comes as SWIFT is working with R3’s blockchain platform, Corda.
“Whether DLT will be an effective solution to the challenges the remittances industry faces, and when the technology will reach sufficient scale to effectively disrupt this space, remain to be answered,” the authors said in the World Bank post. “In any case, there is ample opportunity — and of course need — for innovation in the cross-border payment industry.”