In late January, Ripple CEO Brad Garlinghouse shared a stage at the Paris Fintech conference with SWIFT CEO Gott Liebbrandt. Arguing why each firm represented the future of cross-border payments, their arguments basically came down to whether banks would be willing to abandon their tried and tested relationship with SWIFT to embrace the benefits of a decentralized network. As he has often done, Garlinghouse claimed that the future belongs to decentralized networks. But that decentralized network may not belong to either Ripple or SWIFT.
Operating on the Stellar blockchain network, IBM’s World Wire payments service may offer a best of both world’s solution – combining the decentralization and speed of Ripple with a trusted reputation and existing relationship with major banks comparable to SWIFT. IBM’s official website outlines the World Wire’s benefits, and they are almost identical to those of Ripple’s xCurrent and xRapid offerings: near-instant transactions, complete transparency and thorough transaction tracking, low clearing costs, and compatibility with any currency or asset type. IBM also notes that 97% of the world’s largest banks are already IBM clients, while 90% of global credit card payments are processed on IBM mainframes. The World Wire is designed to bring the full range of disruptive advantages offered by Ripple while being as easy for banks to adopt as SWIFT’s offerings.
IBM and Stellar’s World Wire also deftly overcomes one of Liebbrandt’s biggest arguments against the likelihood of banks adopting Ripple’s technology. Conducting transfers via xRapid means first converting fiat currency into Ripple’s XRP cryptocurrency, then converting this back into fiat currency at the other end of the transfer. The World Wire instead allows any agreed upon digital asset to be used as the intermediary, including stablecoins such as the Stronghold US Dollar-pegged coin. Bank-specific stablecoins, such as JPMorgan’s recently announced JPM Coin, could also theoretically plug seamlessly into the World Wire network.
We analyzed the announcement of JPM Coin in a recent article, along with Garlinghouse’s argument that a system of such bank-specific proprietary currencies would be grossly inefficient compared to a shared open network, like that provided by Ripple’s XRP blockchain. In a recent interview with Cheddar, IBM’s head of blockchain Jesse Lund was clear on the differentiation between the World Wire and JPM Coin. World Wire is aiming to “introduce fungibility of digital assets,” with stablecoins that are much more “broadly accessible” than JPM Coin’s in-house blockchain-based payment solution.
Speaking with Finder, Lund explained that a large number of banks are expected to be part of the network from launch:
“[We’re] going to be supporting more than 50 countries out of the gate, 30-40 currencies, and enough market makers to drag along 30 or 40 banks, so we’ll have a significant portion of the world covered… We’ve got letters of intent with several banks around the world to support and issue digital currencies, stablecoins and other currencies.”
A major announcement regarding World Wire is about to be made as IBM’s Lund shares a keynote speech with Stellar founder Jed McCaleb at the Money 20/20 Conference in Singapore. Scheduled for 9.40am local time on Tuesday March 19, Lund told Finder to expect a “special announcement” during their presentation.
Why has IBM chosen Stellar?
In her most recent letter to shareholders, IBM CEO, Virginia Rometty, described IBM Blockchain as “the global leader in improving trust and transparency across business networks by creating a new way for clients to share and secure data,” with more than 500 blockchain-based client projects and more than 85 active blockchain networks under its umbrella. The same letter details various ways in which IBM’s new technologies are being adopted by major banks, including implementation of its developing AI tech. Leading European bank BNP Paribas is given as an example of a major bank working to incorporate IBM’s AI into its services. As regards World Wire and the IBM/Stellar partnership, this underscores how closely IBM is already working with many leading world banks. But it does beg the question: why does IBM need to work with Stellar?
Lund mentioned two key words when explaining IBM’s choice of Stellar to Finder: “transparency” and “scalability.” In her letter to shareholders, Rometty mentions making use of open-source protocols as being a key part of businesses successfully building a successful hybrid approach to next-generation digital solutions. With World Wire, IBM are practicing what they preach and adopting the open-source Stellar network as the backbone of their payment solution.
Transparency is one of the big selling points of an open and decentralized blockchain network like Stellar. Transactions are broadcast to the blockchain network and agreed upon by other network participants. Unlike the proof-of-work mining model used to verify transactions on networks such as Bitcoin, Stellar uses a consensus mechanism called federated Byzantine agreement (FBA). A full technical breakdown can be read here, with the key way FBA works being that each consensus node on the network has a list of other nodes it considers important, and only verifies a transaction once these trusted nodes have verified the same transaction. Once this transaction verification has spread across enough of the network, the transaction is considered settled.
As for scalability, Stellar’s website claims that it can settle transactions within 2 to 5 seconds. The network has also been designed to enable transactions between all kinds of currencies and assets by matching orders within the network. Chains of transactions can automatically be created, so that if you want to convert US Dollars to Euros but nobody is looking to do the opposite, a chain of transfers could be created between other currencies until a path to the desired currency is found.
Are IBM and Stellar a threat to Ripple and XRP?
There is no doubt that IBM and Stellar’s World Wire is direct competition for Ripple’s xCurrent and xRapid cross-border payment solutions. Interestingly, Stellar founder Jed McCaleb also played a key role in Ripple’s creation.
McCaleb first made his name with eDonkey, a Napster-style peer-to-peer filesharing network. After coming under legal threat from the recording industry, McCaleb created Mt. Gox, which would quickly become the world’s leading Bitcoin exchange. McCaleb sold Mt. Gox in 2011, before the infamous hack that resulted in the theft of 850,000 Bitcoin. McCaleb created Ripple Labs soon after selling Mt. Gox, but departed from Ripple in 2014. As founder of Ripple, McCaleb received 20 billion XRP, which he has been steadily selling off over the past few years. The sell-off has sometimes been controversial, especially at the outset, as his announced intention to sell resulted in an immediate 40% decrease in XRP’s price back in 2014. After some legal dispute between McCaleb and Ripple, he was allowed to regularly sell a portion equivalent to 0.75% of XRP’s daily trading volume. According to The Wall Street Journal, McCaleb was selling as much as 752,076 XRP per day in August 2018.
Current Ripple CEO Brad Garlinghouse took his position in 2015, the year after McCaleb abruptly departed from his role as Chief Technical Officer. Understandably given the legal disputes surrounding McCaleb’s XRP sell-off, Ripple and Stellar rarely make mention of any competition between each other. But both have been much more forthcoming in their intention to replace SWIFT as the world leader in cross-border payments.
We mentioned January’s on-stage clash between Garlinghouse and SWIFT CEO Gott Liebbrandt at the outset of this article. As explained in an article covering that event, SWIFT and Ripple have been in a near-constant war of words for the past few years. IBM and Stellar’s World Wire also clearly has SWIFT in its crosshairs. Without mentioning SWIFT by name, the opening paragraph of the IBM World Wire webpage is clearly taking aim at the established payment network:
“The world has been using the same network to process financial transactions for 50 years. And even though globalization has changed the world, payment fees and other financial barriers remain the same. But now there’s a new way to move money.”
During their Paris FinTech Forum discussion, Liebbrandt told Garlinghouse that SWIFT had conducted the biggest blockchain proof of concept “outside of IBM.” He also stated that it was much easier for banks to integrate with APIs into improved versions of the SWIFT payment network than it would be to switch to an entirely new system like Ripple’s. And Liebbrandt also argued that banks were not prepared to gamble with the volatility of moving funds into a cryptocurrency, however briefly. Garlinghouse argued back that the future belonged to truly decentralized open networks, and that comparing an improved system of SWIFT APIs to Ripple’s network was like comparing a horse and buggy to a Ferrari.
Now IBM and Stellar are offering something that answers all of the issues Liebbrandt and Garlinghouse identified with the other’s payment solution. World Wire is designed to connect seamlessly with bank’s APIs. It has the benefits of an open network without the volatility risks of moving funds into a volatile cryptocurrency. In short, IBM and Stellar are potentially offering a solution that has all the advantage of SWIFT and Ripple’s solutions without either of their downsides. And the project is backed by IBM, a trusted computing giant whose name value alone should be enough to get banks to take notice.
A Long Road to Go
A lot of people within the worlds of banking and blockchain will be watching Lund and McCaleb’s keynote speech in Singapore to see what the next step in IBM and Stellar’s ambitious plans for World Wire will be. But as Liebbrandt and Garlinghouse agreed in Paris, we are still a long way from getting a firm answer on which solution will dominate the future of the global payments industry.
Garlinghouse has stated, in Paris and elsewhere, that we’re still five to ten years out from seeing the type of full adoption of blockchain that Ripple is aiming for. And Lund echoed these sentiments when outlining the long-term vision for World Wire to Finder:
“Our goal is to continue to expand that network and to provide global coverage within 3-5 years where you can actually send remittances in a consistent way, immediately, at a very low cost, from anywhere in the world to anywhere in the world.”
The battle for the future of global payments is clearly just getting started. But while Ripple and SWIFT have dominated the conversation until now, IBM and Stellar represent a very powerful challenger for both.