Trial with twelve banks shows promise of blockchain-inspired alternative to correspondent banking
NEW YORK/SAN FRANCISCO/LONDON – Financial innovation company R3 and twelve of its consortium member banks have trialed Ripple’s distributed financial technology and the potential for its digital asset to scale liquidity and reduce the costs and inefficiencies of interbank cross-border payments.
Banks traditionally provision liquidity for cross-border payments by holding various currencies in local bank accounts around the world, known as nostro accounts. The practice of holding various currencies across many accounts is costly because banks have to fund those accounts, trapping capital. The emergence of digital assets offers an alternative to this process.
Digital assets can enable near real-time value exchange anywhere in the world, providing liquidity on demand and reducing associated costs. Of the popular digital assets today, XRP boasts the fastest settlement speed, settling in about five seconds or less. This trial introduced XRP to test the feasibility of reducing or retiring the use of current nostro accounts for local currency payouts.
The trial demonstrated that the Ripple network could enable banks to make markets for fiat currencies using XRP and then complete authenticated payments without multiple nostro accounts. Through a series of transactions, the participating banks explored how Ripple’s solution and XRP could enable both cost-cutting opportunities and revenue opportunities.
The trial was carried out over the Ripple network in R3’s Lab and Research Centre, which has quickly become a center of gravity for collaborative research and testing of distributed and shared-ledger inspired technologies.
R3 member banks involved in the trial include Barclays, BMO Financial Group, CIBC, Intesa Sanpaolo, Macquarie Group, National Australia Bank (NAB), Natixis, Nordea, Royal Bank of Canada (RBC), Santander, Scotiabank, and Westpac Banking Corporation.
David Rutter, CEO of R3, comments: “The tradition of holding numerous currencies across multiple accounts in different countries is costly and inefficient. This is a legacy issue from a time when the technology did not exist to offer a viable alternative, however digital assets and distributed ledgers can now enable real-time exchange of currencies between parties anywhere in the world without the need for a third party intermediary. This prototype paves the way for a major overhaul of how banks process and settle cross border payments.”
Chris Larsen, CEO and co-founder of Ripple, comments: “Cross-border payments today are still too complex and costly, but thankfully distributed financial technology allows banks and their customers to send money in a truly efficient manner. This trial further validates that native digital assets like XRP can play a key role in lowering liquidity costs and enabling new types of corporate and consumer payments.”
Several of the member banks commented on the significance of the initiative:
Andrew Irvine, Head of Canadian Commercial Banking and Partnerships, BMO Bank of Montreal, comments: “This technology will be a catalyst in reducing complexity, streamlining processes and ultimately lowering the significant costs associated with interbank cross-border payments, which will benefit both banks and their customers in the years ahead.”
Phil Griffiths, Senior Vice-President, Global Transaction Banking, CIBC, comments: “A more efficient global payment system is all about making payments faster, easier, and more transparent for businesses and consumers. Using innovative technology to rethink traditional processes is exactly what’s needed to give businesses everywhere an easier way to send and receive payments, and we are very active in making that a reality for our clients.”
Stefano Favale, Head of Global Transaction Banking at Intesa Sanpaolo, comments: “We were really glad both to take part in the test team and about exploring the Ripple solution and its technical implications in depth. We found the exercise very interesting and we deem that the next challenge is to understand its full potential impact, especially in regulatory terms. The contribution of Central Banks and Regulators to supervise cryptocurrencies together with a higher focus on relevant clearing and settlement are the way to give confidence to the market, reducing the liquidity absorption for the banks and reducing systemic risks.”
Roman Dahl, Senior Business Developer, Transaction Banking, Nordea Bank, comments: “By developing blockchain with native digital assets specifically dedicated to cross-border transactions, Ripple has a great potential to revolutionize traditional global payment concepts – enabling international payments in real time, at lower costs, digitally/cryptographically secure – significantly contributing towards digitalization of the financial industry and our world!”
Carolyn Burke, Head, Regulatory Payments, RBC, comments: “Trial projects like this and the knowledge we gain from them are helping us build a path for the future of payments and deepen the industry’s knowledge on the potential blockchain may have for better payments management worldwide.”
Mike Baldwin, Head of Transactional Solutions, GTS, Westpac Institutional Bank, comments: “Combining the use of digital currency on a shared ledger with our previous low-value, cross-border payment proofs of concept holds great promise for transformation across the entire international payments value chain as well as for financial inclusion.”
R3 is leading a consortium with over 60 of the world’s largest financial institutions to develop ground-breaking commercial applications for the financial services industry that leverage the appropriate elements of distributed and shared ledger technology.
Operating in New York, London and San Francisco, the R3 team is made up of financial industry veterans, technologists, and new tech entrepreneurs, bringing together expertise from electronic financial markets, cryptography and digital currencies.
The R3 Lab and Research Centre has quickly become a centre of gravity for collaborative research and testing of distributed and shared-ledger inspired technologies, and is where R3 works with its partners to define, design and deliver the next generation of financial infrastructure.
Ripple provides global financial settlement solutions to ultimately enable the world to exchange value like it already exchanges information – giving rise to an Internet of Value (IoV). Ripple solutions lower the total cost of settlement by enabling banks to transact directly and with real-time certainty, optionally using the digital asset XRP to further reduce liquidity costs. Banks around the world are partnering with Ripple to improve their cross-border payment offerings, and to join its growing, global network of financial institutions and liquidity providers.
Ripple is a venture-backed startup with offices in San Francisco, New York, London, Sydney and Luxembourg. As an industry advocate for the Internet of Value, Ripple sits on the Federal Reserve’s Faster Payments Task Force Steering Committee and co-chairs the W3C’s Web Payments Working Group.