A battle is brewing. Not in the football stadiums of Russia but in the opportunistic cross-border payments arena. Having overcome hurdles relating to payment traceability and a lack of bank fee transparency, cross-border payments have been an area ripe for disruption. Ripple's RippleNet and Swift's gpi (global payments innovation) networks are in the vanguard. Using blockchain/distributed ledgers to verify and process payments in real-time, these rivals now want support from financial institutions.
During the annual Sibos event hosted by Swift (Society for Worldwide Interbank Financial Telecommunication) in Toronto (2017), Ripple turned heads when it booked a booth at the event and held a concurrent similar event about a mile away. It transported the audience between venues.
RippleNet is challenging the incumbent. Swift has developed over the past 40 years, with more than 11,000 institutions in its network. For faster transaction confirmation, Swift along with 93 banks launched gpi in December 2015. gpi is still signing up new members and recently gained 10 China banks, including the big four (eg, ICBC) and smaller ones like Bank of Jiangsu.
"This service will drive greater efficiency and transparency of cross-border payments, bringing advantages for banks and improved experience for our customers, particularly in Asia where cross-border business activity continues to be strong," states Peng Hua, deputy general manager, operation management, ICBC. gpi says that it handles US$500,000 of payments per day on a live network of 56 banks. Despite gpi's success some are questioning the security of the Swift network following the Bangladesh Bank hack in February 2016, when hackers tried to steal US$81 million from the bank's account at the New York Federal Reserve.
Enter Ripple, an alternative. Founded in 2012, Ripple has expanded rapidly thanks to its RippleNet blockchain. It can complete transactions that typically take six days in less than 10 seconds. It has several financial backers, including Standard Chartered with a US$55 million investment. Unlike gpi, RippleNet is not restricted to banks. It covers money transfer companies like MoneyGram International and Western Union. In May RippleNet partnered with Kuwait Finance House, beefing up its network of some 100 institutions.
While processing cross-border transactions using distributed ledger is central to Ripple, it has an eye on using a digital asset. That's according to Ripple's chief technology officer, Stephan Thomas, who spoke with The Asset in 2017. "Having a digital asset that is hosted on a blockchain is interesting because you do not have a counterparty that regulates access to that ledger. You can treat it as a commodity and an asset that exists out there that makes it attractive to create liquidity with that asset," he says. Ripple's digital asset, XRP, is one of the most popular cryptos. Yet if RippleNet uses a digital asset like XRP, partner financial institutions may take fright given their volatility and controversial validity.
Winning this match hinges on network usability and security. Or given Ripple's advantages, how about it collaborating with Swift's historical banking network?
