Ripple Labs and Aite Group hosted a joint webinar last week to discuss the challenges of modernizing real-time global payments. Read the highlights below, or watch the entire webinar for an in-depth look at the global payment landscape today.
Aite Group senior analyst Nancy Atkinson began with an analysis of the cross-border payments landscape. “They are changing as a consequence of demographic, technological, and economic factors,” Nancy said. “Many different players use cross-border payments.”
Nancy looked at the raw numbers, including the volume and value of cross-border transactions to find that global remittances and the volume of cross-border transactions are growing. Despite expected modest growth of wholesale transactions, retail payments comprise over 80% of cross-border transactions.
Nancy examined the regional contribution to cross-border transactions volume. Asia-Pacific is the largest contributor to growth in volume and value. Western-Europe’s role in the growth is secondary, because it is going to see a reduction in cross-border transaction when items that use to be cross-border now become domestic under new regulations that allow individuals and companies to make and receive payments in Euro regardless of their location.
Revenue from cross-border payments is growing in emerging markets. “Emerging markets are really going to be the difference,” Nancy said, whereas mature markets are not seeing the same level of growth.
There are a number of factors that are leading to the demand for real-time faster payments or immediate payment solutions. The millennials in particular have joined the workforce and are leading to changing expectations—such as having many choices and the instant satisfaction. They want communication to be constant and available.
Nancy went over the model of correspondent banking.
There is a number of factors that lead to correspondent banking not being suitable for modern needs. It was developed more than 30 years for “infrequent, high value, B2B payments or for net settlement at the end of the day,” Nancy said. “It doesn’t provide a lot for low value transactions … and those produced by small to medium enterprises and individuals.”
Another method could be utilizing the international payments framework association. The objective is to improve and simplify non-urgent cross-border transactions by establishing rules, standards and operational procedures. The benefits associated with the framework include cost reduction and efficiency, Nancy said.
Companies like Ripple work within the banking system. They are leveraging the domestic schemes that exist, while laying a foundation for distributed internet systems that operate outside the banking industry framework and directly connect banks or customers. The Ripple protocol is a global decentralized network that allow interbank transaction, and that currency might be fiat or bitcoin currencies – whatever the party value could be included. It also facilitates the foreign exchange by having an algatherism to help determine the best FX rate. Most of the fees and risks associated with correspondent banking is eliminated. In the chart below, Ripple is the far right hand.
Fundamentally, correspondent banking is going to remain a prevalent model for high-value B2B payments but for high-value payments that are based on open-accounts, the transability are going to become very important. Banks need to think about current offerings that
Need to encourage the the development of a global model for low-value, high … ACH payments and encourage interoperability. The internet protocols are going to underpin different models to have faster, cheaper models. A key success factor will be to partner.
CEO of Ripple Labs Chris Larsen concluded by speaking about Ripple’s specific role in this landscape.