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The Ripple revolution

Ripple, the block chain based payments provider, is really sure of itself: last year it had  their annual conference at the same time and town as SWIFT’s SIBOS, and on Valentine’s day last month, in their newsheet the Team Ripple wrote: 

  • “SWIFT — the decades old financial messaging service relied on by banks around the world — no longer has the monopoly on global banking it once did. Blockchain has quickly emerged to challenge SWIFT’s dominance on the industry.
  • While SWIFT has been a reliable and secure method to transfer money across borders, its technology for sending money across borders is out of date. International settlement between financial institutions takes two to three days while information travels across borders in real-time.”

Evidence is emerging that there is substance to their claims:

  • the banks are increasingly become a member of Ripple as well as SWIFT: they have 100+ customers, 75+ of whom are deploying their service commercially
  • SEB have slashed payment times for USD from two days to two seconds, but only for transactions between SEB accounts and the USD is the only currency they process. (At moment SEB charge corporates the same fee for instant payment as for a normal payment.)

Nevertheless, there are still major problems to be overcome.

Problems to be overcome

Although the problems are quite fundamental, none are insurmountable, however, they will take time to overcome, e.g.:

  • Banks are wary about using the currency conversion structure that uses Ripple’s XRP crypto currency, e.g. SEB do not use the currency conversion part of the service
  • The network of Ripple banks is still small
  • Legal framework when using the system to other banks is not fully accepted yet.

However, the block chain technology in the Ripple solution offers full transparencey with immediate transfer of value which opens up new markets. The main issue for banks, for many years, will be that they will have to offer an additional payment solution because it takes time to close down existing payment systems.

CTMfile take: Corporate treasurers could usefully study the new technology and how they can use it. For large M&A transactions it makes real sense already.

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