Blockchain Needs to Go Commercial in 2016; Ripple Has a Head Start


The race is on, and Ripple has a head start. Image: Shutterstock

It’s time to get down to business. At least that’s the thought when it comes to keeping people’s interest in blockchain technology past 2016.  

The proof of concepts that the industry has been experimenting with during the past year need to move to commercial production with end users seeing benefits over the traditional financial pipes. Because if not, blockchain will struggle to maintain its inertia this year.

Last year, blockchain filled the pages of newspapers as either a technology to save the world or destroy it. Several high profile financial services veterans, including Blythe Masters, moved into the blockchain space and venture capitalists opened the faucets for blockchain funding rounds, only increasing the hype.

This year will be about cutting through the noise, says Jan Pilbauer, vice president of information technology and chief information officer at the Canadian Payments Association (CPA).

“The industry has mobilized the energy already and in 2016 it’s going to be extremely important with the peaking interest to bring something more real, something that can work in practice,” he says.

Rhomaios Ram, managing director of Deutsche Bank and the founding partner of its digital bank initiative doesn’t doubt the blockchain consortiums will deliver a product this year. Deutsche Bank is part of R3 and a number of other industry groups interested in collaborating on blockchain tech.

It’s been a long time coming, but getting banks and other financial services providers to work together is challenging. There’s not only legal, regulatory and compliance issues that require attention but also societal concerns that stall change in finance.

But in Ram’s mind, there’s definitely disruption around the corner.

The industry has taken aim at payments as the killer use case for bitcoin and blockchain, and because it’s focused on eliminating intermediaries that will come with an undoing of the existing players in their existing roles.

The CPA’s Pilbauer says this unraveling also accounts for the gradual moves by incumbents.

With blockchain’s most significant application being deconstructing the correspondent banking chain, payment hubs and clearing houses like the CPA, must think about how its role in payments will change.

“We’re open to changing our position and business model if it’s for the greater good,” Pilbauer says. “But at the same time, it’s scary. Maybe we’re putting ourselves out of business.”

Although Pilbauer thinks blockchain is much less disruptive than people initially predicted. In his eyes, there’s room for both the legacy institutions and innovative startups. The CPA, for instance, is especially interested in the idea of ledger interoperability, mentioning the Interledger protocol which is currently being developed in a W3C community group. The biggest concern is creating a system of different blockchains, both private and public, that interact with each other in a simple, standardized way.

“There’s been so much hype for the last six months to a year particularly around enterprise solutions,” says Chris Larsen, CEO and co-founder of Ripple. “There’s been too much discussion around vague notions of radical change and improvements; now that’s got to manifest in real products.”

But Ripple has a head start. The company has 10 banks moving into commercial production phases of Ripple solutions, which facilitate real-time, cross-currency settlement for financial institutions.

“There’s pretty dramatic proof points on the [pilot] implementations with end customers being able to do instant remittance without much cost,” Larsen says. According to Ripple’s cost model, its solutions have been shown to reduce banks’ costs for cross-border payments by about 33 percent.

Ripple has another 30 banks in pilot programs, using real money but not rolled out to customers yet.

The key problems with the current system is how slow it is when transacting cross border, typically taking two to five days to settle and relying on intermediary correspondent banks that charge high fees. Plus nearly 4 percent of cross-border payments fail, driving a lot of uncertainty which causes overhead such as people calling in to ask where their payments are.  

This is especially important for corporates when making a large number of small value payments, for instance dividend payments to shareholders across the globe. A real time system can also help alleviate some of the capital a corporate holds around the world in case a payment system fails.

“Corporate customers of banks can now reduce the float they keep around,” Larsen says.

For instance, Seagate Technology, an American data storage company has about $1 billion tied up in its global supply chain.The company sees potential in Ripple’s technology to solve for this, which is why Seagate became an investor in Ripple.

The opportunity for distributed financial solutions to reduce the friction in payments at financial institutions and large corporates is extensive, and most of the industry is eagerly awaiting commercial implementations this year to see tangible benefits.

Bailey Reutzel is an independent freelance journalist focusing on finance, technology and politics. She blogs about US political culture and how people interact with money at