Brad Garlinghouse, CEO of Ripple, likes to compare speeds of moving money internationally.
“If I want to move money from here (San Francisco) to London, the fastest way is to fly there,” he said. “We can stream video from the space station, but I can’t move my own money from A to B, especially for international payments, but that is also true for domestic transfers.”
The challenge Ripple is working on is how to use blockchain, or distributed ledger, technology to improve the efficiency, speed and cost of payments.
“For anyone in payments, from Visa to SWIFT or Square, the landscape will change as we see friction reduced, and the future will arrive sooner than we think.”
Blockchain technologies are compelling in a lot of ways, Garlinghouse added, but a lot of people are all over the map with blockchain ideas, making it look like a technology in search of a problem.
Ripple is focused on real world use cases, understanding the real value proposition to banks and customers.
Santander’s POC experience
Last year Santander launched a pilot to use Ripple for international payments in 19 European countries and the U.S., said Ed Metzger, head of technology innovation at Santander in the UK. Santander Innoventures, the bank’s venture capital arm, had made an investment in Ripple, he added.
“In our pilot we enable staff to send money to any bank in 20 geographies by sending a payment via Ripple and then using a partner in each destination to complete the last mile to the end bank account,” he explained.
“International payments only work if you can get the money to where you want it to go. This will greatly improve Santander’s internal transfers, but it’s important to be able to send to any bank. With the current setup we were able to get to money to customer accounts the next day. Blockchain for international payments opens up the possibility for instant payments, but as first step we have improved the service to go from multiple days down to next day at the latest.”
For Santander, a key issue was finding a solution that worked today and could make a difference to customers today. It developed a mobile app to connect to Ripple.
“It’s been very successful; we have very positive feedback from staff members who have used it.” They liked the certainty of when the payment would arrive, which they said was superior to the experience with SWIFT for international payments.
“Ripple gives certainty as to when the money would arrive and how much would arrive. If you want 100 euros to arrive, you want to make sure you send exactly the right amount of money to cover any fees taken, and with SWIFT that is sometimes challenging.”
Ripple and its digital asset, XRP
While Ripple doesn’t rely on bitcoin, it does use its own digital asset, XRP.
Comparing bitcoin to Napster as an early player that demonstrated the digital aspect of music and proved the technology but didn’t win, Garlinghouse said bitcoin may prove to be a better store of value than a medium for transaction — its average transaction time is over 10 hours at a cost of more than $1, he said, while Ripple can process a transaction in three to four seconds for a fraction of a penny.
(Bitcoin’s price has risen above $4,000, more than doubling in the last month, according to coindesk.)
Garlinghouse thinks the cross-border payment business is ripe for change.
“Do we really think in 10 years out global trans-border payments will take days to settle, built on a system designed in the ‘70s?”
Ripple will be at Sibos, the annual SWIFT operations conference, he said, and the company has found a growing audience.
“They are believers. They think we have been stuck in decades old technology long enough and they would like to see the marketplace move forward.”
Ripple provides customers with settlement in three to four seconds with two-way messaging so a user can see that an account number matches the intended recipient. The messaging also shows when a payment has arrived at its destination. The information drives down error rates, he said.
Unlike Currency Cloud and TransferWise which aim at companies and consumers, Ripple works with banks, which he described as repositories of value. Ripple now has 75 customers and around 20 have announced their first product use cases, while others are in stage of deployment, he added.
For a Ripple bank user to reach a user at a bank that is not a Ripple, banks can work with payment service providers like Earthport, he said.
The existing model of correspondent banking has its problems. The number of correspondent banks around the world dropped by roughly 50 percent over the last 15 years, said Garlinghouse, from 28,000 to about 12,000 The cost of supporting correspondent banking has increased with regulatory compliance and the cost of capital.
“Post crisis people are more aware of dormant capital, such as nostro yen accounts in Tokyo that because of regulatory change can no longer count toward my capital ratios in the U.S.”