For our readers can you explain what Ripple is and how it is used within the payments industry?
Ripple provides financial infrastructure solutions that make it faster and cheaper for banks to settle transactions globally. These cross-border transactions are the lifeblood of international commerce and make up $22.5 trillion in annual volume. But they are conducted on outdated technology that adds unnecessary time, cost and risk to each payment. Ripple is bank-grade infrastructure technology that solves these issues by lowering the cost of every transaction by enabling banks to settle instantly and directly with one another with complete visibility and control of each transaction
Can you share a bit more about the challenges in international payments and what specific needs Ripple addresses?
The antiquated, pre-Internet infrastructure used to settle cross border payments creates four crucial roadblocks:
1. Restricted – fewer than 10 banks globally provide liquidity for cross-border transactions;
2. Slow – it takes 2-4 days to settle a transaction;
3. Uncertain – there is no two-way communication in a transaction, and it’s impossible to confirm a successful transaction;
4. Expensive – there is an estimated $1.6 trillion in costs, plus lost revenue opportunities with pre-funding requirements.
Ripple’s distributed nature and global network enables:
1. Access – any bank within the Ripple global network can settle directly with another, and access competitive FX;
2. Cost – Ripple delivers lowest total settlement costs for all network participants.
How are banks responding to the concept of a distributed ledger used for these cross border payments? Any reservations?
Banks are excited by the prospect of distributed ledger technology because it can address their core concerns, delivering transaction certainty while saving them time and money. It can also enable them to offer a better customer experience in a world where customers demand the ability to send faster, more global transactions. To date, more than a dozen banks around the world have completed internal Ripple pilots using real money for cross-border payments. Out of the 30+ banks currently in active deal phases, ten are top 50 global banks, and several banks are progressing to build commercial Ripple-powered services for cross-border payments.
Do you see banks eventually adopting one standard technology, will there be multiple ledgers, or will banks ultimately develop their own in-house solutions?
We envision a future with multiple distributed ledgers – both external technology providers and in-house solutions. Within that future, Ripple will be a key technology helping to power the world’s instant payment network. This system of instant global payments will be part of what we call the Internet of Value, a fast-forming reality in which value can be exchanged as easily as information moves today. There will be many companies providing many ledgers for many different use cases, but we believe Ripple will be a preferred cross-currency settlement technology used by the world’s banks. In support of this vision, Ripple recently introduced the Interledger Protocol (ILP), a free, open source, and neutral web protocol for efficient and safe payments across payment networks. ILP enables interoperability between the world’s ledgers and delivers the core benefits of multi-currency distributed ledger technology with infinite scalability. The introduction of the ILP will give us the ability to interconnect ledgers of any kind – be they bank ledgers, PayPal ledgers, or M-Pesa ledgers. Ultimately, we believe interconnectivity of the world’s payment systems will be a key part of building the broader Internet of Value.
What is the role of your native currency XRP in the payments process, and is that worrisome or reassuring to financial institutions?
XRP serves as a universal currency bridge in cross-currency transactions, helping to drive down the total cost of FX. While XRP may be an attractive asset for liquidity providers, it is not required to complete a transaction, meaning banks can continue to execute fiat-only transactions as always.
Distributed ledgers have been knocked for scalability issues – can you explain how Ripple’s Interledger Protocol is meant to combat that?
ILP solves for that exact issue. By delivering interoperability between the world’s ledgers, it enables infinite scalability. You can read more about ILP here: https://interledger.org.