Carlo Messina, Managing Director and CEO of Banca Intesa Sanpaolo in Milan is wrestling with a specific problem. In an interview with Bloomberg, he says there are “too many banks in Italy and Europe.” Messina sees some consolidation happening; however, he also states that the M&A activity won’t create revenue synergies, but only cost synergies. European banks are looking for ways to reduce their costs, adding to the bottom line from within.
As a counterpoint, Asia-Pacific banks have quadrupled their investment in fintech in the last year, citing opportunities for growth and expansion enabled by new technology. Their point is not that there are too many banks, but that they see opportunities to add revenue sources by offering new value-added services to their customers. They foresee a future wherein they add to their bottom line by leveraging new technology to meet new client demands and increase their revenue.
From where Ripple sits, both increasing revenues and reducing costs are possible. Payments are the foundation of all services that banks offer. Increasing revenue and decreasing costs through greater efficiency in payments with Ripple can significantly affect a bank’s balance sheet.
Here are some examples:
- Lower total cost of settlement: Ripple brings new efficiencies by enabling real-time settlement, ensuring transaction certainty and removing settlement risk. Ripple’s technology can also enable real-time payments processed through multiple counterparties. As a result, banks can consolidate their nostro accounts while improving their quality of service and reach.
- Lower liquidity costs: Ripple allows banks to more efficiently allocate liquidity for payments. In high-volume corridors where they have the ability to source FX at competitive rates, banks can continue using their nostro accounts to process payments. In low-volume corridors, Ripple connects banks with third party liquidity providers (bank or non-bank) seamlessly and in real time to process payments. This enables banks to achieve greater balance sheet efficiency and eliminate delays, improving the quality of their customer service.
- Lower operational costs: With bidirectional messaging, banks can more efficiently exchange information about the sender, receiver, fees, rates, delivery estimate and payment status to lower their operational cost of processing international payments. Ripple’s bidirectional messaging abilities give banks the ability to pre-approve transactions before the funds are committed, ensuring high straight-through-processing (STP) rates and less wasted investigation and tracking effort after payment failures.
- Increased revenue: With higher automation and lower cost of processing payments, Ripple can enable banks to offer new products and services that they couldn’t profitably offer before (like corporate disbursements, low value remittances, and just-in-time payments).
Our technology can also provide increased access to smaller banks who want to flex the same muscles that allow larger banks to exercise their global reach. After a recent historic first, in which $1,000 was sent from Canada to Germany in eight seconds, ATB Financial Director of Innovation Tim Wan remarked, “Now we’re playing on the same level playing field – larger and smaller banks alike.
Messina’s struggle is very real, but the answer isn’t that one bank must swallow another in order to reap savings in operational costs. Asia-Pacific banks are on the right track seeking growth and new revenue by offering new services, but they too can gain greater internal efficiency from the new technology.
Ripple can do both. Contact us to find out how banks are working with Ripple.