Those who follow developments in the cross-border payments space will likely be somewhat aware of the ‘rivalry’ (if one can indeed call it that, given the relative size differences) between the 2012 startup Ripple and SWIFT. The so called rivalry dates back to the 2015 SIBOS event and eventual counter-SIBOS event held by Ripple in 2017.
In this piece, posted in Global Trade Review, the article’s author recounts some statements made yesterday by Ripple’s Navin Gupta at the SIBOS annual event in London. Ripple, of course, had gone through some twists and turns, but has settled upon the B2B cross-border blockchain network model for delivering fast, cheap and transparent payment results. But with the SWIFT gpi solution being adopted across the existing SWIFT bank network (many times larger than Ripple), the question has been raised as to the value of Ripple:
‘Swift may be moving towards real-time payments, but it does not solve the problem that banks today have trillions of dollars parked in pre-paid nostro accounts around the world….Responding to an audience question about whether there is still a value proposition for Ripple, a provider of blockchain-based payments, in light of Swift’s work to bring real-time payments to the market, Gupta said:…“People are looking at making things faster in their existing correspondent bank network, but nobody is taking away the need for pre-funded accounts. That’s the fundamental value proposition that we are discussing today.” ‘
While SWIFT gpi is faster and a better experience than the standard legacy messaging network (and also piloting some BCT injection), Ripple says that it still relies upon correspondent banking and the need to hold cash in foreign banks to satisfy the eventual transaction settlement, whereas the Ripple xRapid solution is purely BCT, using cryptocurrency as a proxy for spot FX trades and near real-time settlement.
The issue of course has been FI reluctance to adopt cryptos like Ripple’s XRP (not to be confused with a stable coin, such as JPM Coin, for example), given the general regulatory scrutiny and confusion around non-fiat digital currencies.
‘“Our guess is that there is about US$5-10tn that is stuck in pre-funded accounts around the world,” he said…. “This is money which the originating bank has to keep with the beneficiary institution to be able to make the pay-outs. If this US$5-10tn were to be redeployed back into the home economies can you imagine what effect it can have? When we speak with central banks, they love it.”…Gupta made the comments as he was presenting Ripple’s cross-border payment solution xRapid in the ‘innovation theatre’ at Sibos….xRapid, which was made commercially available in October last year, uses cryptocurrency (or a ‘digital asset’ as Ripple likes to call it) to enable banks to source on-demand liquidity in a foreign country. It means banks are not required to have correspondent relations and hold capital in nostro accounts.’
The author goes on to point out that Ripple is at SIBOS and therefore continuing to press for the more direct model. The bet would be that Libra and the like will start gaining more mainstream acceptance sometime not to far out. The recent discussions at BIS would suggest more serious consideration is underway.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group