It was announced this week that innovation firm R3 and 12 banks within its member consortium have been experimenting with Ripple’s distributed ledger technology to be used in order to scale liquidity and reduce costs for cross-border payments.
Banks involved in the trial include Westpac Banking Corporation, Nordea, Barclays, Intesa Sanpaulo, Scotiabank, National Australia Bank, Royal Bank of Canada and Santander.
Liquidity is traditionally provided to banks for cross-border payments by holding various currencies in local bank accounts around the world in what is known as nostro accounts. Doing this is expensive because of the trapped capital involved in funding these accounts, however, digital assets are being perceived as a cost-effective alternative.
CEO of R3, David Rutter, highlighted how holding numerous currencies across a number of different countries has always been expensive. “This is a legacy issue from a time when the technology did not exist to offer a viable alternative, however digital assets and distributed ledgers can now enable real-time exchange of currencies between parties anywhere in the world without the need for a third party intermediary.”
On a similar note, Chris Larsen, CEO and co-founder of Ripple believes that cross-border payments are still too complex in this day and age, but this trial proves that native digital assets like XRP “can play a key role in lowering liquidity costs and enabling new types of corporate and consumer payments.”
Because of the increased digitalisation of everyday life, customers want their banking services on a real-time basis and the capability of providing liquidity on demand could transform many industries, let alone just cross-border payments. Experimentation is being actioned with XRP, which boasts the fastest settlement speed of five seconds or less.
The trial found that the Ripple network would be able to ensure that banks can make markets for flat currencies using the XRP technology and that authenticated payments could be made without the need for multiple nostro accounts. The banks then tried to figure out how costs could be cut and revenue could be achieved.
Andrew Irvine, Head of Canadian Commercial Banking and Partnerships, BMO Bank of Montreal, said that “this technology will be a catalyst in reducing complexity, streamlining processes and ultimately lowering the significant costs associated with interbank cross-border payments, which will benefit both banks and their customers in the years ahead.”
Phil Griffiths, Senior Vice-President, Global Transaction Banking, CIBC, also commented on how a more efficient global payment system is all about the speed, ease and transparency for all parties. “Using innovative technology to rethink traditional processes is exactly what’s needed to give businesses everywhere an easier way to send and receive payments, and we are very active in making that a reality for our clients.”
Roman Dahl, Senior Business Developer, Transaction Banking, Nordea Bank, believes that the combination of blockchain and digital assets dedicated to cross-border payments means that “Ripple has a great potential to revolutionise traditional global payment concepts - enabling international payments in real time, at lower costs, digitally/cryptographically secure - significantly contributing towards digitalisation of the financial industry and our world!”
Mike Baldwin, Head of Transactional Solutions, GTS, Westpac Institutional Bank, had a similar attitude and mentioned that “combining the use of digital currency on a shared ledger with our previous low-value, cross-border payment proofs of concept holds great promise for transformation across the entire international payments value chain as well as for financial inclusion.”