Insight & Analysis

Ripples in the payments landscape

Published: Feb 2017

Ripple are aiming to revolutionise the payments space. Treasury Today speaks to Daniel Aranda, Managing Director of Ripple Europe to find out how.

What, in your view, is wrong with the current payments infrastructure?

Existing financial information systems rely on central master ledgers to track who owns what and who has paid who. These ledgers sit within banks, broker-dealers, central banks, clearing systems etc. When payments need to go cross-border, this system starts to break down because these ledgers don’t easily interoperate with one another.

Today, international payments take from three to five days to settle and have an error rate of 5%. This means that making payments between countries is slow, unreliable and expensive.

With the roles and responsibilities of the corporate treasurer having grown exponentially as businesses increasingly operate at a global level, the current payment infrastructure is woefully inadequate to meet corporate treasurers’ needs – in particular, that of managing liquidity and foreign exchange risk and having real-time data to hand.

Many corporate treasurers are now having to make decisions based on a snapshot of their cash position rather than real-time information. This results in sub-optimal decision making and increases costs as well as risk.

How does Ripple aim to change the game and revolutionise the payments landscape?

Ripple aims to establish the Internet of Value (IoV) so that the world can move value the way it moves information today, using distributed financial technology.

The technology is built around an open neutral protocol called the Interledger Protocol (ILP), which standardises the process of settling transactions across different ledgers and networks. This offers a cryptographically secure end-to-end payment flow with transaction immutability and information redundancy. Overall, this allows companies on different networks to transact directly with each other.

The technology is designed to fit within a bank’s existing infrastructure and complies with risk, privacy and compliance requirements.

What makes you feel that this is the right approach?

No single system can support the world’s transactions any more than a single database can run the internet. Hence Ripple believes that the ILP is the foundational block to enabling the world to move value the way it moves information, creating the IoV.

All banks and payments providers are able to leverage the ILP to power payments across networks globally. Regardless of the network’s underlying technology, ILP is able to work with any network or system to send value across.

Ripple recently announced the creation of the first interbank group for global payments known as the Global Payments Steering Group (GPSG). Banks involved include Bank of America Merrill Lynch, Santander, Unicredit, Standard Chartered, Westpac Banking Corporation, Royal Bank of Canada and CIBC.

The group will oversee the creation and maintenance of Ripple’s payment transaction rules. With payment rules and defined standards, GPSG offers banks a low-risk way to start using the technology for global settlements and lay the foundation for a new payments network.

How do you foresee the corporate payment landscape looking in the next five years?

2016 was the year that banks began to accept distributed ledger technology to be used for commercial payment solutions, particularly in cross-border payments. 2017 could be the year that financial institutions increase the adoption of digital assets like Ripple’s XRP to fund their payments in real time and in the process, cut down their dependency on nostro accounts.

As distributed ledger technology enables faster transaction processing and revolutionises data and delivery services, corporate treasurers are increasingly interested in the same seamless payment experience as consumers expect and are now demanding such services from banks.

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