Will Ripple’s Cross-Border Ambitions Sink Or Swim?

Round numbers offer milestones, demarcation points, moments to stop and reflect — tens, hundreds, thousands … convenient shorthand for progress. Think of decades or centuries, anniversaries, the old saying that “the first million is the hardest.”

The same mindset holds true, too, as  businesses grow. McDonald’s crossed the threshold from millions of burgers to billions served. Social media firms count subscribers in much the same way.

News came this week from Ripple, which has a presence in both the cryptocurrency and blockchain realms, that 13 more financial institutions have signed on RippleNet. Among the new additions to the roster: Euro Exim Bank, Ahli Bank of Kuwait, Pontual/USEND and others.

The firm stated Tuesday (Jan. 8) that there are now more than 200 customers signed on to RippleNet. The 200+ tally gives rise to the round-number reflection mentioned above: What might lie ahead for cross-border payments — and does speed trump trust?

A bit about mechanics and who is doing what is in order. In the latest announcement, JNFX, SendFriend and other are using the digital asset known as XRP to “source liquidity on demand” when sending payments on behalf of customers. That is geared toward eliminating pre-funding needs of banks to have foreign currencies on hand tied to destination currencies. Where capital is free to roam (in a way) beyond the confines of the traditional correspondent banking system, it can be deployed in other ways, making money cheaper to move, and speedier to move too.

There are a few wrinkles (ripples?) here. As the company noted this week, at least some firms are opting to use RippleNet but not the crypto for liquidity (more on this in a moment), and they are able to use Ripple’s APIs for cost savings and transparency. Of the 13 banks noted on Tuesday, five are using XRP for the liquidity needs.

“In 2018, nearly 100 financial institutions joined RippleNet, and we’re now signing two — sometimes three — new customers per week,” said Brad Garlinghouse, CEO of Ripple. “We also saw a 350 percent increase last year in customers sending live payments, and we’re beginning to see more customers flip the switch and leverage XRP for on-demand liquidity.”

The cross-border payments pie that is attracting Ripple is a large one, worth, potentially, trillions of dollars as global trade and technology combine in an inexorable growth trend. And it’s large enough to satisfy a number of players. But for now, the stage is set for a head on battle between Ripple and SWIFT.

Of Cryptos And Blockchain

For the moment, let’s step back a bit and slice and dice the firm a bit. Ripple often gets used as shorthand for cryptos, and indeed it owns 60 percent of the XRP that is floating around the digital currency realm. But as CNBC noted, the crypto had been called Ripple, and had been listed on some exchanges as Ripple. The crypto trades for pennies now, where once it fetched a couple of dollars. Ripple (the firm’s) worth seesawed with the volatile pricing of XRP (and XRP, by the way, is sold here and there, to the tune of 1 billion XRP monthly, by the firm to help fund  Ripple operations).

But beyond XRP, Ripple wants to grab global payments and grapples with SWIFT, short for Society of Worldwide InterBank Financial Telecommunications. SWIFT may seem antediluvian compared to Ripple, having been around for more than 45 years.

The promise of Ripple is that the correspondent banking system, where transactions settle in days, can give way to a blockchain-powered settlement time of seconds across Ripple’s XCurrent product, where Ripple’s software sends messages, instead of SWIFT acting as the conduit. For cross-border multi-currency transactions there is xRapid, which debuted toward the end of last year and where cryptos are used, as Garlinghouse told CNBC, to “bridge” currencies and sidestep pre-funded requirements.

Garlinghouse has countered some critics of the whole process — where the volatility of cryptos can be a risk — by stating that fiat is volatile too, and the waiting period of days to settle injects risk into the traditional mechanics too (where banks send payments to other countries through what is known as nostro accounts).

The Tuesday announcement does indeed speak to progress, but longer term, the blockchain demands something that may be a bit dicey: Faith in crypto, which is 60 percent held by a single entity. Yes, a large amount of those 60 billion (or so) of the 100 billion Ripple tokens are in escrow, but majority ownership is … still a majority. SWIFT, to be sure, has a strong hold on “the way it’s always been done” and counts more than 11,000 financial institutions globally.

SWIFT is hardly standing still, having brought to market its gpi (global payments innovation) which brings payments to completion in hours, and with improved messaging capabilities (there also has been a blockchain pilot in place). It should also be noted that compliance departments at those 11,000 banks have long been used to working with SWIFT in general, while there are all sorts of regulatory issues tied to XRP, as whether it is security or commodity. Such uncertainty is an effective bridge against wholesale adoption. For now, those hoping for a sea change in global trade finance may have to settle for … ripple effects?