Building an Open Marketplace for Moving Money


An open marketplace for liquidity would allow a plethora of new participants to participate. Photo: Gemma Billings

In building a better way to move money, creating a marketplace for liquidity is critical. After all, liquidity is the lifeblood of the world economy and the result of a well-functioning financial system. In a highly liquid market, buyers and sellers can make trades with minimal impact on price. In other words, liquidity is the ability to do what you need to do when you need to do it with, most of all, little fuss.

Lately, there’s been signs that liquidity in the broader markets has been deteriorating. A major reason for this is how markets today are structured. Most liquidity is still provided by the world’s biggest banks through their market making operations. But in the wake of the worst financial crisis since the Great Depression, those same banks are managing an ever-expanding regulatory burden just to stay in business. According to the Office of the Comptroller of the Currency (OCC), the seven largest market making banks spent $400 million in 2014 in anticipation of the recently instituted Volcker Rule.

Increasing compliance costs have had an immediate, negative impact on market liquidity as banks reduce their market making footprint or cut entire trading divisions. The expectation then is that non-bank liquidity providers, which aren’t required to adhere to the same stringent regulations, will eventually fill the vacuum. What we are witnessing, then, is a seismic shift in how the market is structured.

Such periods of change represent a grand opportunity to do things in a better way. That’s a major reason why we’ve been committed to building an open marketplace for moving money.

Rather than relying on major banks—or a municipal taxi service or hotel chain—an open marketplace for liquidity would allow a plethora of new participants to participate, similar to the impact Uber has had on taxis and Airbnb has had on places to stay. Those services made use of idle cars and empty rooms to greatly expand the marketplace. In a sense, Uber and Airbnb vastly improved the liquidity for rides and room and board by making these services more available for less cost and higher quality. We believe Ripple’s open marketplace will have the same impact on moving money.

Individuals benefit because now they have the opportunity to put idle cash to use—much like idle cars—for a potentially higher return than their checking account. Market making shops benefit from a new platform to tap into. Everyone else, including corporations, which fuel most payments worldwide, benefit from a reduction in the true cost of settlement.

The most expensive part of international payments is actually moving that money around along with the time it takes to do so. Multinational corporations have dealt with this by rapidly expanding the size and responsibilities of their corporate treasury departments, which often fund dozens or even hundreds of bank accounts around the world to facilitate efficient payments. With a marketplace for moving money, money doesn’t actually have to move across borders. Instead, flows that cancel out mean money can stay put, dramatically reducing the true cost and time of settlement. For instance, if a Mexican business making a payment to a US supplier has its payment matched by remittance flow from migrant workers, that money never has to cross a border.

The other side of the coin is that an open, accessible marketplace for moving money has the potential to grow both liquidity and payment flow. Consider again the case of Uber. In San Francisco, the taxi market was about $140 million per year, according to Uber CEO Travis Kalanick. But Uber is already making three times that with revenues of $500 million per year.

This means that competition doesn’t necessarily cannibalize existing revenue, it can help the entire pie grow much larger. In the case of Uber, by expanding the supply of drivers and offering a far better experience, many more customers decided to use taxi services rather than other modes of transportation, expanding the marketplace and eventually spurring on both innovation and competition.

But ultimately, like many inventions, the open marketplace is borne out of necessity. In an increasingly globalized world, the flow of cross-border, multi-currency payments has never been more pertinent. Wouldn’t it be great if money could move like information does today?

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