Opinion: Recently, a lot of speculation has ensued regarding the existence of a partnership between Ripple and existing incumbent SWIFT, thus leading to a lot of hype among the XRP community. This is mainly due to the news of Ripple’s involvement in the upcoming Sibos conference in Sydney focused on solving for cross-border payments.
The fallout from this partnership could potentially be one of the biggest things to happen to Ripple, as it partners with those it is aiming to replace. Moreover, they will also have access to the 11,000 clients that SWIFT boasts of if news of the partnership is true.
The spark that set the tinder on fire of this rumor was that Santander was partnering with SWIFT for their new Global Payments Initiative program, leading many to believe that the bank could use third-party liquidity providers to settle the cross-border transactions. Santander is a member of RippleNet, utilizing the xCurrent product to reportedly handle 50% of their transactions.
RippleNet itself has multiple solutions to provision liquidity between banks on their network. Detailed in a blog post revealed today, Ripple stated:
“RippleNet efficiently solves these liquidity pain points for financial providers and banks using flexible solutions that address various types of liquidity provisioning…RippleNet’s pathfinding capabilities, financial institutions can even link together multiple liquidity arraignments within the same transaction to optimize their transaction networks.”
This represents a significant step forward in their philosophy of approaching banks, with SWIFT continuing to serve banks as a secure messaging system. Instant settlement between banks on the SWIFT network is almost impossible, owing to the prefunded liquidity relationships taking a long time to actually settle the payment due to liquidity problems.
RippleNet has three different methods for sourcing liquidity, namely the traditional bank-to-bank fiat relationships like those that exist in SWIFT’s system, establishing third-party fiat relationships between banks and other financial institution for settlement in more expensive corridors, and using XRP as a bridge currency to transact values.
The latest option remains as the reportedly best option for many banks and financial institution, providing a 40-70% decrease in fees and settlement in two minutes. This means that the value was transacted completely between the sending and receiving ends, instead of a payment being initiated and settled. It can also be used to expand the reach of the RippleNet into payment corridors with exotic currencies and low volume without the need for nostro accounts.
As mentioned previously, RippleNet is able to utilize a feature known as pathfinding to link together multiple arrangements for liquidity. One of these can even be a digital asset such as XRP, allowing banks to source liquidity from institutions that they might not have a 1-to-1 connection with.
To further strengthen these points, Dilip Rao, the Global Head of Infrastructure Innovation at Ripple, detailed how the existing system actually works. He also spoke about it in conjunction with the Faster Payments initiative undertaken by the United States, stating:
“Today the sending bank has a day (or three) to deliver the funds they need to have in their Nostro, based on the certainty of payments already processed. But in the world of #FasterPayments, banks will need to forecast the funding required so they can ensure enough is available, in advance of payments being processed.”
He revealed that forecasting the funding in real-time presents a much bigger challenge, resulting in “unhappy clients” or too much money left over. Rao then revealed that XRP could be utilized for the instant funding that this process needed, providing liquidity on-demand that was sourced from retail trading on exchanges,
However, when asked about a potential partnership between Ripple and SWIFT, Rao stated:
“Idle speculation. Cool your jets.”
This also brings to mind the statement made by Marcus Treacher, the Global Head of Strategic Accounts at Ripple. He stated in April:
“We recognize that our model could eventually lead to SWIFT’s demise, as it is equally equipped to handle large as well as low-value transactions, but we are happy to coexist with the SWIFT world.”
Brad Garlinghouse, the CEO of Ripple, stated:
“Swift GPI is like putting a Ferrari shell on a Model-T engine. It’s a cosmetic upgrade on old infrastructure: messaging is still not tied to settlement, it’s unidirectional and can’t solve for liquidity.”
These statements put a rest to the speculations made on the existence of a partnership with SWIFT. While RippleNet was created to solve the problems that SWIFT has, it aims to do so while coexisting with the system. Executives have also stated in the past that this partnership will not occur, owing to the advancement of Ripple’s technology over the incumbents.
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