New tasks require new tools. Image: Shutterstock
In a previous article, we reviewed the reasons we believe it’s important to modernize the global payment infrastructure, with special emphasis on meeting business and consumer demands for speed.
Speed is only the beginning. Consumers and corporates also demand fee transparency, predictability of service, increased payment tracking and decreased settlement risk. These are all endemic problems in today’s current system. And we believe we must go beyond what SWIFT’s Global Payment Innovation Initiative (GPII) has proposed.
Fee Transparency
Regulations such as Dodd Frank and PSD2 require pre-disclosure of fees and FX rates, which is, unfortunately, not achievable in SWIFT’s system.
While GPII offers improvements in terms of speed and transparency, SWIFT cannot offer pre-disclosure of fees before a payment is initiated.
Ripple takes the guesswork out of the equation and satisfies regulatory requirements by providing pre-disclosure of fees and FX rates before the transaction is initiated.
End-to-End Payment Tracking
At its core, the current cross-border payments system relies on a serial process between correspondents that creates risk, cost and delays. In fact, error rates run up to 12 percent.
The more banks in the chain, the less transparency from end-to-end.
SWIFT’s GPII will continue to mandate its 140-character message for payment instructions; that much has not changed. Unfortunately, important data such as invoices are not permitted. The existing flaws caused by the serial process are not addressed. SWIFT has not actually innovated the core of this messaging system; GPII is an iteration of exactly what SWIFT provides today with a marginal increase in speed for availability of funds.
With Ripple’s bidirectional messaging, banks and all participants exchange and confirm rich, contextual payment information, in real-time before executing a transaction, increasing straight-through processing rates.
With Ripple, transaction processing and screening by all participants happens in parallel, instead of a series of hops – minimizing error rates. This certainty and simplicity are a significant way that Ripple is different from other payment systems. You can compare the features and benefits of these two systems for yourself.
Settlement Risk
With Ripple, settlement of funds is instant and certain, minimizing time delays even with several intermediaries in the payment process. Ripple’s payment process also eliminates one-leg settlement risk, so the payment can never fail at an intermediary — either the entire payment settles or it does not.
This is not theoretical; Ripple is moving real money today. See how it works.
