Commercial banks have been exploring and investing in the distributed ledger technology (DLT) for quite a while now, as it has enormous potential for the financial industry. Nonetheless, David Schwartz, the chief cryptographer at Ripple, a company that has been at the forefront of implementing blockchain-based payment solutions, surprisingly claimed that banks are unlikely to use DLT to process cross-border payments in the near future.
Even though blockchain enables banks to make money transfers cheaper and faster, Mr. Schwartz believes that privacy problems and low scalability are still hindering the progress of DLT. Thus, the banks have acknowledged the potential of blockchain but believe that the nascent technology is still not entirely capable of catering to their huge needs.
According to Mr. Schwartz, “What we hear from many of our customers is that it’s imperative to keep their transactions private, process thousands every second, and accommodate every type of currency and asset imaginable. I will concede, we haven’t gotten there yet.”
Marcus Treacher, senior vice president of customer success at Ripple went on to add that, “We started out with your classic blockchain, which we love. The feedback from the banks is you can’t put the whole world on a blockchain.“
The two most popular products developed by Ripple are their xRapid and xCurrent platforms. xRapid makes use of crypto exchanges to convert money to its XRP token and send it abroad. Once the transaction is complete, the money is then converted once again to the desired currency and delivered to the recipient.
The service has been tested in cross-border payments from the US to Mexico, with payment processors reporting savings of 40-70% compared to traditional money transfers. In addition, the payments took around 2 minutes to be completed, which is a major upgrade, as a regular cross-border payment usually takes a couple of days.
xCurrent is a bank-to-bank payment service that provides instant payment settlement, which is what makes it superior to current networks. Curiously, Mr. Schwartz does not consider it to be a distributed ledger but rather an immutable interledger protocol. In April, Ripple teamed up with banking giant Santander, to develop One Pay FX – an international money transfer platform, built on xCurrent.
Despite the fact that big banks are slow to adopt the blockchain technology, Brad Garlinghouse, the CEO of Ripple remains positive, claiming that dozens of major banks will use xRapid by the end of the year.
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