Whenever you or a company need to send money to someone in at least two different countries—you, companies, banks and settlement institutions are involved in cross-border payment. (Kantox) To send money, say from the U.S. to France, all one needs is to go to a local bank and request a transfer. The bank will then get a set of instructions from you about the transfer and use the SWIFT system to send these instructions.
After from $25 to $65, and from one to two days later the money will show up in the intended recipient’s bank account.
Society for Worldwide Interbank Financial Telecommunications (SWIFT)
Today, banks rely on SWIFT for cross-border payments. If you need to transfer money overseas, a member bank will use the SWIFT, system. (Investopedia) It is a large messaging network banks use to connect with other financial institutions to “quickly, accurately, and securely” send and receive information, which includes money transfer instructions. There are about 10,000 SWIFT member institutions that send some 24 million messages on the SWIFT network.
Old and Outdated
However, sending money across borders is not as easy as using Zelle to transfer money from one account to another, or requesting a wire transfer within the U.S. Indeed, according to Mobile App Daily some of the biggest challenges in handing cross-border payments include:
- Outdated operational systems.
- Slow payment processing.
- Personal data privacy regulations.
While there are many opinions about the corporate payment processing system—one thing is clear: It is complex. In the current system, transferring money across borders is undoubtedly a complicated process. No one “omnipresent system” exists for routing money across borders. Instead—banks are connected with a dated correspondent, or messaging system. This system turns out to be slow and financially inefficient.
Perhaps what is most alarming for these banks faced with inefficiencies, is that the current system will lead to dissatisfaction among customers and customers will simply leave for alternatives. With cross-border blockchain projects like Ripple, that day has arrived.
▪︎ @Ripple is thriving off the failures of antique #SWIFT system, market Analyst tells Boom Bust.
“Our Legacy Financial Systems are incapable of dealing with the new Age of Globalization… #XRP has been really valuable in that sense.”#xrpcommunity #IoVhttps://t.co/p8SPzsBCNd
— Boncryp XRP (@boncryp) December 22, 2019
“The emergence of blockchain technology has undoubtedly altered the course of global digital payment development.” (News BTC) Indeed, with Ripple, and more recently with the entry of Facebook’s Libra—they are now in position to challenge SWIFT, Visa and MasterCard. With Ripple, cross-border payments are made in real time and can cost as low as from $1 to $2. A huge competitive advantage from $30 (USD) per transaction.
Is Ripple able to unseat SWIFT? According to News BTC, reported Tony Spilotro, Ripple announced (June) a partnership with “cross-border settlement powerhouse MoneyGram.” While the announcement resulted in MoneyGram’s stock prices to soar, it did very little for Ripple and XRP—begging the question of whether Ripple is losing ground to SWIFT, or is the move with MoneyGram sufficient to secure Ripple’s place within the cross-border money transfer settlement space?
Ripple Struggles with Market Share
In early November, “Ripple announced it crossed the 300 customers mark on its blockchain cross-border payments network,” reports Ledger Insights. Ripple had two main products, xCurrent and xRapid run on RippleNet. xCurrent is a payment messaging system that competes with SWIFT, while xRapid uses Ripple’s XRP, digital currency, to transfer funds. However, they were merged into the RippleNet brand, and xRapid was rebranded as On-Demand Liquidity (ODL), leveraging XRP.
While Ripple has achieved “a higher transaction per second capacity, a transparent distributed ledger, and payment speeds from destination to destination taking only 4-7 seconds and costing only a fraction in fees,” (News BTC) Ripple has failed to gain market share—thereby putting Ripple at a disadvantage—in a period when crypto is facing its own challenges in which it is “no longer being viewed as the golden goose,” faced with regulation, and with competitors like SWIFT are catching up.
— Digital Asset Observer (@_CryptoCrazy_) August 22, 2019
SWIFT and Banks Update Their System
According to News BTC, in a recent cross-border payment trial, SWIFT completed a cross-border payment transaction from Australia to Singapore in 13 seconds. The trial involved SWIFT’s Global Payments Innovation Instant into Singapore’s native payment service, FAST. Ten banks participated, and included HSBC and the Royal Bank of Canada.
While a 13 second transaction is double the time of Ripple—anything under a minute will likely be considered negligible and acceptable for the average user or bank. With speeds roughly comparable to Ripple, one should not be surprised to see the sentiment and price for XRP decline.
For Ripple enthusiasts, this is not necessarily the news they want to hear. However for the consumer and banks, they benefit from the competitive entry of potential disruptive forces represented by blockchain technology and companies like Ripple.
A free market benefits from competitive forces. While SWIFT has reduced its transfer speeds in one trial, will they be able to scale, and will there be a commensurate drop in price? In my view, this is a tall order to expect banks and SWIFT to go from $30 per transaction to $2 per transaction to retain their competitive position. At this time—I wouldn’t count Ripple out just yet.