RippleNet: How Ripple is powered and how it’s changing
RippleNet could become a payments provider from central banks all the way to the consumer base.
Global financial markets recognise the US$1.6 billion savings that Ripple could create. While the price of Ripple (XRP) is the talking point of cryptocurrency circles, a closer look at its technology and how Ripple Labs is applying that technology is important.
Ripple Labs aims to simplify cross-border payments. To do this there are three pathways to focus on: payments processing, sending payments and source liquidity.
The three solutions Ripple Labs has created are xCurrent, which focuses mainly on the large institutional payments processing market; xRapid which is the source of XRP liquidity; and xVia, which has the business-to-business payments sending solution at its core.
Because specific business details are confidential an assumption needs to be made. By looking at the stated intent of the Ripple technologies it is estimated what particular technologies are being applied in use case scenarios.
By looking at some use cases for the existing technologies, a pattern begins to emerge showing the evolution of Ripple and how that might impact its future.
xCurrent is the most advanced and tested solution of Ripple Labs. It has been trialled with central banks that include the US Federal Reserve, the ECB, the Monetary Authority of Singapore and Bank Indonesia among others.
This payments processing solution is the most exciting and will have the largest effect on the international system of payments if it remains competitive in the field. As it is, it seems set to replace the existing SWIFT system of payments processing.
xCurrent is described on Ripple’s website as “Ripple’s enterprise software solution that enables banks to instantly settle cross-border payments with end-to-end tracking. Using xCurrent, banks message each other in real-time to confirm payment details prior to initiating the transaction and to confirm delivery once it settles.”
In 2017, xCurrent was responsible for transferring US$180 between Swedish bank SEB and one of its US clients. In addition to that, the largest cross-border payments generator in the world, Singapore has been using xCurrent to power transactions. Standard Chartered of Singapore and AXIS Bank of India have been transacting local currencies with the use of xCurrent.
The Ripple website describes xRapid as being “for payment providers and other financial institutions who want to minimize liquidity costs. Because payments into emerging markets often require pre-funded local currency accounts around the world, liquidity costs are high...”
xRapid is, in effect, powered by XRP. However, this does not help in understanding what xRapid actually is or what it does. With limited information, it appears as though xRapid functions as a pool of liquidity, which means a ready-made source of pots of XRP.
From an operational perspective, xRapid’s use seems to have some challenges. For example, if Standard Chartered wanted to use XRP to transfer from the Singaporean dollar to the New Zealand dollar, would Standard Chartered have to purchase the XRP first, or would xRapid function sort of like an overdraft account?
Perhaps questions like these are what is slowing uptake of XRP in cross-border payments.
While xRapid does have challenges ahead, the xRapid project seems to be building steam in 2018.
On the Ripple website xVia is described as “being for corporates, payment providers and banks who want to send payments across various networks using a standard interface. xVia's simple API requires no software installation and enables users to seamlessly send payments globally with transparency into the payment status and with rich information, like invoices, attached”.
By analysing information on the Ripple website it seems that xVia is the least developed solution of the three but that is not to say that it is going to fail. Far from that, the cryptocurrency community was abuzz with speculation that eBay’s public “dumping” of Paypal as a senior payments provider had something to do with Ripple.
eBay announced it would be promoting Adyen as a payments provider over the coming years. eBay joins Adyen’s list of clients who include Uber, Netflix and Spotify among other high-volume payments senders. The exciting thing here is that the existing technology of Ripple Labs has the capacity to transfer seamlessly to Adyen.
Analysing existing information xVia seems to fit the purposes of Adyen well and will capture efficiencies not yet optimised by Adyen.
Phases of implementation
Looking at the business progression, the three different financial solutions seem to be going online in three phases.
In the first phase, xCurrent has been wheeled out to central banks and major cross-border payments providers. In phase two xRapid is being developed, shown with the announcement of several financial institutions agreeing to its use. Phase three appears to be quite a way off and uncertain, even if Adyen does eventually use xVia.
To say that Ripple Labs is ambitious is putting it modestly. The way things are shaping up RippleNet could be involved in payments processing from the central bank level to the consumer base. This is still uncertain as there is strong competition from the likes of Stellar, meaning anything is possible.
Being a Google Ventures-backed company it is well placed to be competitive in the US market at least for payments processing.
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