/ Ecosystem

The Fintech Banks are Taking Seriously

Hodor

Hodor

I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

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That "Light-bulb" Moment

It happened not so long ago, with the advent of the popularity of the world's first distributed digital store of value - Bitcoin. Bitcoin was an experiment when it was created on Halloween of 2008 by a shadowy figure who called himself Satoshi Nakamoto. But Bitcoin was not without its flaws.  It can only handle 4 transactions per second, and it takes hours to settle transactions using 3 or more block cycle confirmations. It's network security is based on a "proof of work" algorithm that relies on electricity usage that is now measured at well over one million dollars per day. 1

Cue the original Ripple developers! It is now 2012, and Bitcoin has been around for a little over three years.  A small group of company founders joined together a series of two disparate ideas; a crypto-currency that could be used to convert into  any possible other currency, and a new way to secure the network that didn't require the concept of "mining."  They created the idea of a new type of cryptocurrency that would not rely on "proof of work" to guard it's network; instead, the consensus to validate transactions would be based on mathematical principles known as "Byzantine Fault Tolerance." This would allow for blazing network settlement speed. 2

The next step for Ripple was the most difficult. The team knew the potential of their creation, and they needed to market it to banks and financial institutions. In case you're wondering, banks do not like taking risks; they are, as an industry, one of the most conservative types of businesses, and have to work within the regulatory framework of the individual countries in which they're located. Because of this, Ripple secured money from a series of investors to fund their first year of work, knowing full well the effort it would take to convince the banking industry about their product. These investors included such names as Google Ventures and Andreessen Horowitz.

The company worked hard, updating the protocol and making XRP stronger, more resilient, fine-tuned, and secure. Over time, the protocol proved itself,  supporting millions of transactions and closing it's ledger over 30 million times without incident. It's performance metrics are literally legendary when placed side-by-side with the other two current leaders in the crypto space, which Ripple is unafraid to do:

Fast_XRP_Metrics scalable_xrp_metrics

Ripple's cryptocurrency is known as XRP (pronounced "zerp" by the XRP community). These zerps are now the third-most popular crypto-currency on the market, behind Bitcoin and Ethereum. 3  The company's value is now measured in the billions, not only based on its token value, but also on the value of it's revenue through Ripple implementations for large financial institution and banking customers.

Banks have been under pressure from regulatory organizations, standards guidance organizations, and industry leaders to upgrade their IT infrastructure, all of whom are heavily leaning in Ripple's direction.

Standards Organizations Point to Ripple

ILP stands for "Inter-Ledger Protocol", which is an international standard promoted by the World Wide Web Consortium and the IETF to standardize payments across disparate ledger systems. This standard, not coincidentally, was created and championed by Ripple.  4

The International Monetary Fund

In addition to standards organization support of ILP, Ripple is the only crypto-currency company that currently holds a seat on the International Monetary Fund (IMF) High Level Advisory Group on FinTech. You heard me right; Chris Larsen, the former CEO, is a member on that group, reporting its findings to IMF Managing Director Christine Lagarde. 5

Central Banks

In addition to the top two standards organizations and the IMF, central banks are working with Ripple to better understand ILP and Ripple's potential for money transfers and settlement. The Bank of England recent worked with Ripple to identify opportunities to improve cross-border payments. 6

Who's Who of Banks

And Now Banks are Hopping on the Ripple Train

They are now starting to look at the modern fintech offerings that have proven themselves and can lower costs on a measurable basis. When it comes to lowering costs, Ripple is not waiting for banks to discover on their own the benefits of using Ripple technology. Ripple has hard numbers to back up what they can do for banks, and enables
them to calculate their potential savings. 7

cost_savings

So Which Banks are Already on Board?

We know the raw numbers, because Ripple makes a point of publishing these on it's home page: Official_adoption_numbers

So can we put some names to these numbers? Yes. A picture might say it more clearly:

banks_using_ripple

Ripple is charting a course that is crystal clear compared to its competitors. In a recent interview with American Banker, Brad Garlinghouse, Ripple's CEO, explained about the company's vision for the future:

"...International banking today, said Garlinghouse, has "a speed problem, a cost problem, plus an error rate problem." As cross-border payments ping-pong among correspondent banks—as many as five for a single payment—each one takes a piece of the action in the form of fees or currency-exchange charges. The initiating bank often doesn't know ahead of time what the total cost of a payment will be.

International wire transfers between banks cost from $5 to more than $50, plus foreign-exchange charges of 0.25% to 3% and "landing fees" of as much as $20. And the error rate for wire transfers is between 3% and 5%, Thomas said.

Where Swift, the Society for Worldwide Interbank Financial Telecommunication, provides a one-way messaging service, Ripple provides a two-way protocol. This allows for greater transparency: Banks can exchange information and find out ahead of time what the fees and foreign-exchange rates will be, along with the expected date of delivery for the funds...."  8

  • Banks like straight talk
  • Banks like to retain their market share
  • Banks avoid risk
This is why Ripple is their favorite new fintech, and soon Ripple's technology stack will become part of the "status quo" for moving money around the world!

 

  1. source: https://github.com/ethereum/wiki/wiki/Proof-of-Stake-FAQ
  2. source: https://en.wikipedia.org/wiki/Ripple_(company)
  3. source: https://coinmarketcap.com/
  4. source: https://ripple.com/files/ripple_ILP.pdf
  5. source; http://www.imf.org/en/News/Articles/2017/03/15/pr1784-imf-managing-director-welcomes-establishment-of-high-level-advisory-group-on-fintech
  6. source: http://www.bankingtech.com/775302/bank-of-england-teams-with-ripple-for-cross-border-payments/
  7. source: https://ripple.com/insights/ripple-can-help-banks-evaluate-their-cross-border-payment-costs/
  8. source: https://www.americanbanker.com/news/inside-ripples-plan-to-make-money-move-as-fast-as-information

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Hodor

Hodor

I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

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