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Interviews

Ripple’s Gupta: “There is a significant amount of movement from high street banks interested in the network.”

By Chris Kapfer

Ripple discusses how it wants to scale its business further in the region in 2019

  • Globally, it took Ripple  two years to acquire the first 100 customers but it took only one year to acquire the next 100.
  • Expanding multi hub model with banks as regional clearing partners to reach further scale
  • Banks in Asia believe both global platforms, Ripple and Swift gpi have their strength and weaknesses

Ripple announced recently that nearly 100 financial institutions joined RippleNet in 2018 bringing it to a total of more than 200 customers. Among the latest batch of 13 new financial institutions two banks joined, Euro EximBank and Ali Bank in Kuwait.

This is smaller compared to the number of banks SWIFT gpi has currently, which has gained since its launch in 2017 the support of over 300 financial institutions, including the world’s 60 largest banks.

With the latest remittance corridors opened from the US to Mexico and to the Philippines in January 2019, Ripple is now present in all large remittance corridors, operating in over 40 countries across six continents, and it aggressively is closing the gap.

“Every one of those 200 financial institutions, of which 50% are from Asia and the Middle East, are production ready and are in the process of going live. It took us two years to acquire the first 100 customers but it took only one year to acquire the next 100. Existing customers are using us more by leveraging our multiple corridors and the network effect is really starting to take off, said Navin Gupta, managing director for Ripple, South Asia and MENA.

When Ripple Net launched in 2016 there was scepticism from banks and regulators. Incumbant banks hesitated. Their own legacy bank infrastructure was too complicated and driving the cost of onboarding this technology. Most of Ripple’s early customers where neo banks or non-bank FIs.

But the ability to send money globally in real time, a high processing transparency and pre-validation of accounts as well as regulatory opening to blockchain technology increasingly worked in Ripple’s favour. While remittances are a small percentage at many banks in Europe or North America they are an important revenue source in Asia and the Middle East. Top tier banks earn between 15% to 20% from remittance and settlement fees to total bank fee income.

“What we are seeing across governments and central banks that we are engaged with is the effort to streamline digital assets and to bring it either into an existing framework or build new policies through which cryptocurrency and digital assets itself can be managed. For 2019, we see a favourable regulatory environment. We see clear regulatory signals in ASEAN such as Thailand, the Philippines and Singapore moving ahead on digital assets,” Gupta added.

Today, large commercial banks from Korea, Japan, India and  ASEAN are signed on to Ripple. The Middle East is Ripple’s fastest growing market place. While Ripple does not disclose the exact numbers it counts relationships with at least 9 banks from the UAE, Kuwait, Oman, Saudi Arabia and Bahrain. The National Bank of Abu Dhabi (NBAD) was the first bank in the Middle East to sign on to RippleNet in February 2018. Recent FI’s in the Middle East that have signed up include Al Ahli Bank of Kuwait and BFC Bahrain.

Internationally, other players deploying Ripple technologies are American Express, Japan’s SBI Holdings, France’s Credit Agricole and Banco Santander.

Gupta regards these ‘progressive’ institutions, ready to experiment with blockchain technology and digital assets and using it into production.

“There is a very significant amount of movement from high street banks to join the network and we believe at different points in their lifecycle they will make this decision.”

To address interoperability and scalability, a key demand banks have put forward, it has further enhanced the framework using InterLedger Protocol (ILP).  “It is 100% interoperable with all other platforms. Last year we showed a live example in Berlin where we had seven different blockchains and we were able to take transactions across seven different ecosystems such as trade, logistics and energy.”

Ripple is currently in the market offering its remittance solutions through xRapid and xCurrent. xRapid, a product that uses the digital asset XRP, is an enterprise solution that uses a digital asset to help facilitate cross-border payments.  

“We currently have 8 customers who have signed on to use xRapid, including Catalyst Corporate Federal Credit Union, which is a roll-up of 1,400 member and client credit unions throughout the United States,” Gupta said.

In Japan, Ripple works with a consortium of banks.  The Japan Bank Consortium released a smartphone app called ‘MoneyTap’ developed as an ‘overlay’ service on Ripple’s blockchain technology to allow customers of the bank consortium to settle transactions instantly, 24 hours a day, seven days a week.

It is the first mobile app of its kind to be developed and used by multiple, different banks in the country. It  allows the bank consortium’s customers to make instant domestic payments and only requires a bank account, phone number, or QR code, and helps shed the costs associated with existing banking and ATM fees that are currently applied to domestic money transfers in Japan, making those payments not just faster, but cost less overall.

“So banks are thinking about how to maximise the delivery of Ripple value onto their customers and that is what we like because banks want to create a front end which is fully deployed,” Gupta explained.

According to Ripple, using XRP for liquidity when sending a cross-border payment helps financial institutions avoid the hassle of pre-funding accounts in destination currencies. Gupta hopes that in 2019 as regulatory clarity emerges, banks and other forward looking financial institutions will look to leverage XRP.

“The biggest cost is holding local currencies in making payout possible. Banks keep a large amount of pre funding amount of beneficiary currencies which translates into a higher cost of capital and depreciation risk that increases the cost per transaction.”

Gupta highlighted Beetech in Brazil which was able to eliminate SWIFT fees for all of its remittance corridors, dropping in its own fees from $20 to $2 per transaction in the process.

To reach further scale in particular to connect banks in small frontier markets the next version, Ripple 2.0, will be expanding its hub or multi hub model. This addresses the issue that in the process of global banks retrenching from frontier markets, local banks in Asia/ME banks have seen a decline in correspondent banking network. To fill this gap, Ripple will further expand its hub model, potentially to South Asia, that started with Siam Commercial Bank in Thailand serving as a regional clearing partner for Ripple.

“Ripple offers a unique advantage. It saves international banks from having a direct banking relationships with a multitude of countries in frontier markets. Siam Commercial Bank (SCB) is able to clear all transactions on behalf of its international counterpart and provides the last mile connectivity SCB offer into this region, in this case ASEAN. At the same time all the benefits of Ripple stay as they are such as instant debit and credit, tracking payments from start to finish, ability to pre-validate the bank account and you don’t have to have currency risk in local currencies.”

According to Gupta, this takes care of the issues that all large local banks in the world are seeking: In terms of reducing the number of relationships they have but at the same time it gives the opportunity to deliver the services to their customers on the last mile.

Ripple ‘s effort to scale it network globally has succeded in particular in regions such as Asia Pacific and the Middle East  but it still has to prove to a larger pool of banks that there is a distinct advantage to SWIFT gpi. Banks believe both platforms have their strength and weaknesses though for some the differentiation Ripple is offering do not justify yet the cost. That said, banks see value in both. As Gupta said, there is a significant amount of movement from high street banks interested in the network boding well for accelerating Ripple’s network effect.



Keywords: Ripplenet, Blockchain
Institution: Euro EximBank, Al Ahli Bank Of Kuwait, National Bank Of Abu Dhabi, BFC Bahrain, American Express, Japan’s SBI Holdings, France’s Credit Agricole, Banco Santander, Japan Bank Consortium, Siam Commercial Bank
People: Navin Gupta
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