Banks Test Ripple’s Digital Asset In X-Border Payment Overhaul

The distributed ledger technology developed by Ripple is now at trial phase among FinTech innovation group R3 and 12 of its member financial institutions, as the collaborators look to an alternative to traditional interbank global payments.

An announcement Thursday (Oct. 20) said R3 and a dozen of its partner banks are now using Ripple’s digital currency, dubbed XRP, to fulfill cross-border transactions. Reports said the financial institutions are exploring how the use of that currency could potentially reduce the cost of traditional cross-border payments practices.

BMO Bank of Montreal, CIBC, Intesa Sanpaolo, Nordea Bank, RBC and Westpac Institutional Bank are among the FIs participating in the trials.

As the companies explain in their announcement, banks usually keep foreign currency reserves in what are called “nostro accounts” in order to be ready to fulfill a cross-border payment. According to the R3 consortium, this practice essentially forces banks to trap capital. XRP offers an alternative to the nostro account, the firms said, and is among the fastest digital currencies offered today, with settlement speeds as fast as five seconds.

“The tradition of holding numerous currencies across multiple accounts in different countries is costly and inefficient,” summarized R3 CEO David Rutter in a statement. “This is a legacy issue from a time when the technology did not exist to offer a viable alternative; however, digital assets and distributed ledgers can now enable real-time exchange of currencies between parties anywhere in the world without the need for a third-party intermediary.”

“This prototype paves the way for a major overhaul of how banks process and settle cross-border payments,” he concluded.

Ripple CEO and Cofounder Chris Larsen added that today’s cross-border payments are “still too complex and costly.” Distributed financial technology, inspired by the blockchain, has the potential to offer a more efficient way to move money across borders, he said.

“This trial further validates that native digital assets, like XRP, can play a key role in lowering liquidity costs and enabling new types of corporate and consumer payments.”