In our last discussion we showed how the fragmented landscape of cross-border payments is being redefined by the power of ISO standardization, and the fresh technology approach of RippleNet.
Today, cross-border payments are on the cusp of transformation. Blockchain technology and digital assets like XRP can create a more frictionless cross-border payment experience.
At Ripple, our mission is to remove friction from global payments and enable money to move the same way that information does today—digitally and instantly. We work with banks and payment providers to modernize legacy systems using blockchain and digital assets to make sending money around the world easier, faster and more reliable.
Our philosophy is to provide each bank and payment provider with a real-time connection to a global network called RippleNet that rigorously adheres to the ISO2022 standard, enabling these organizations to send and receive payments on behalf of their customers, between each other immediately, with finality and transparently—regardless of the amount of money being sent or the currencies that is needs to be sent from and to.
But being able to send a payment immediately cross-border does not solve the whole problem. This is because funds need to be placed in the right accounts in the right country at the right time to allow payments to actually flow. This need to pre-fund accounts is called the Liquidity Problem, and is one of the causes of hold-ups with cross-border payments. To solve this, Ripple has developed a solution called On-Demand Liquidity (ODL) which uses the digital asset XRP to enable funds to be sent to destination accounts immediately – literally on-demand, rather than days beforehand.
In this way the digital asset, XRP, is especially useful in making cross-border payments faster, more efficient and less costly. XRP acts as a bridge between two different currencies, ensuring that payments are delivered and received in a given geography’s or user’s local currency instantaneously.
RippleNet is a decentralized global payment network that can send and settle global payments on-demand, using rules and standards approved by its members and aligned with ISO 20022 standards. In this way, RippleNet can cut the settlement period on cross-border payments from three days down to just three seconds, making this process truly frictionless.
The Growing Market Interest in Crypto and Cross-Border Payments
Thus far, the digital asset market has been fairly monopolized by high-net-worth individuals and crypto enthusiasts. However, there are a growing number of indicators that suggest institutional players are entering this market. Recently, crypto markets have seen all-time highs in futures contracts’ open interest at entities like the Chicago Mercantile Exchange.
A report from Fidelity Digital Assets surveyed 800 institutional investors and found that nearly 80% noted compelling characteristics about digital assets, such as high potential upside and a lack of correlation to other asset classes. Even long-time crypto dissidents like macro investor Paul Tudor Jones have recently jumped on the digital asset bandwagon due to the pandemic. His belief is that quantitative easing will lead to inflation and views Bitcoin as one of the best inflation hedges.
The more interesting takeaway, however, was that 60% of respondents believe digital assets have a place in their investment portfolio. That’s a significant number when you consider that the survey was conducted prior to the pandemic. The role of digital assets in a post-COVID world is something that’s been gaining increased traction and attention, drawing a parallel to gold.
And while digital assets were generally considered a riskier investment, there isn’t an industrial use for gold any more than there is for cryptocurrency. It’s all about the value people place in them. The fact that digital assets can provide tangible services like cross-border payments means more investors are now realizing their value, instilling a level of market confidence in these assets.
The Time to Revolutionize Cross-Border Payments Is Now
The cross-border payments industry is currently at an inflection point.
For millions of remitters, small businesses, and emerging digital marketplaces, speed and cost matter. Time delays in payments can drastically interfere with people’s livelihoods. Everything from covering critical medical expenses in emergencies to tuition payments can be derailed by an outdated, overly complex cross-border payments system.
Banks and financial institutions that can bring cross-border payment methods into the modern world and provide a truly frictionless experience that reduces the many pain points consumers are facing today will emerge as leaders in tomorrow’s global payment industry.