A surprising comment was heard yesterday – or rather, a comment that came from a surprising source – when the chief cryptographer of Ripple said that the technology is not ready for banks to use, according to Reuters.
This is surprising because Ripple products are supposed to be designed exactly for that purpose, using blockchain technology to make international money transfers quickly and cheaply. Ripple has partnered with literally hundreds of businesses and financial institutions and made billions of dollars.
The results of tests of its products have generally been reported as very favourable, and its coin XRP has a market cap of $21.8 billion, according to coinmarketcap.com. SWIFT, the money transfer system that the world has been using since the 1970s is scrambling for a response.
However, according to Reuters, David Schwartz of Ripple said that distributed ledger technology is not yet scalable or private enough for banks.
“What we hear from many of our customers is that it’s imperative to keep their transactions private, process thousands every second, and accommodate every type of currency and asset imaginable,” Schwartz said. “I will concede, we haven’t gotten there yet.”
Marcus Treacher, senior vice president of customer success at Ripple, said: “The feedback from the banks is you can’t put the whole world on a blockchain.”
The Bank of England tested Ripple back in 2017, calling it promising but “not sufficiently mature”. On the other hand, Bank Santander is planning to launch a Ripple-based international payment application soon.
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xCurrent and xRapid
Ripple’s most widely used products are xCurrent and xRapid.
xRapid uses third parties to fund transactions. It selects an exchange which will convert the money to XRP and send it abroad. Once there it the XRP is converted into the currency of the destination and transferred to the recipient. In May, Ripple testing the service to send money from the US to Mexico, and reported that it would save customers between 40 and 70 percent of the usual transfer fee.
xCurrent is a bank-to-bank payment service which is supposed to make all currencies and cryptocurrencies immediately fungible. It works by using ‘connectors’ that all hold money too. This latter service does not use XRP, while the former does.
One of the most notable clients of xRapid is Western Union, a partnership which was announced in February. However, according to a report in Fortune, the financial services and communications company has yet to see any savings.
CEO Hikmet Ersek told Fortune: “We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests. The practical matter is it’s still too expensive.”
However, the company only tested ten transactions with xRapid. Asheesh Birla, Ripple’s senior vice president of product, retorted: “If they were to move volume at scale, then maybe you would see something, but with 10, it’s not surprising that they’re not seeing cost savings. They do millions of transactions a month, and I’m not surprised that with 10 transactions it didn’t have earth-shattering results.”
Ripple CEO Brad Garlinghouse remains optimistic. He told CNBC earlier this month that he expects dozens of banks to be using Ripple by the end of next year.