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Ripple Challenging SWIFT for Cross-Border Payment Dominance, But What Does it Mean for XRP?

Ripple-Challenging SWIFT-xrp

The World Economic Forum in Davos is the annual Superbowl of the global elite, bringing together world leaders and representatives of virtually any significant entities in the high-stakes world of global finance. Within the crypto space, the most anticipated event of the 2019 forum was a scheduled debate between Ripple CEO Brad Garlinghouse and soon-to-be-retired SWIFT CEO Gottfried Leibbrandt. The scheduled meeting never took place, prompting accusations that Leibbrandt had ‘chickened out’ of a debate with a company that could pose a major threat to SWIFT’s dominance over cross-border and inter-bank money transfers.

It looks like the much-anticipated showdown between Garlinghouse and Leibbrandt will now take place just a few days from now, at the Paris FinTech Forum on January 29. But both Garlinghouse and Leibbrandt were present at Davos, with a few shots fired in either direction that will only add to the anticipation surrounding their eventual face-to-face showdown.

Garlinghouse appeared on-stage at Davos alongside a panel that included 500 Startups Partner Edith Yeung, BCG Digital Ventures founder Jeff Schumacher, and North Island Chairman Glenn Hutchings. Much of the twenty-five-minute discussion focused on how blockchain tech can disrupt the payment services provision which SWIFT currently dominates. Aside from offering banks and consumers far cheaper and faster cross-border and inter-bank value transfers, Garlinghouse also made the headline-grabbing claim that Ripple could free-up $10 trillion. This $10 trillion is currently used to prefund bank transfers, but Ripple has the potential to make this necessity obsolete. An extra $10 trillion flowing through the global economy would obviously have enormous implications.

Another point that will be of great interest to SWIFT and Leibbrandt was Hutchings’ answer to the question of whether big tech players such as Google and Amazon would be worried about the ascendancy of blockchain. Hutchings replied that IBM weren’t impacted by the success of Microsoft, just as Microsoft wasn’t threatened by the growth of Google, Facebook, and Amazon, and none of these established tech firms were disrupted by Uber. Instead, the firms most likely to feel the impact of successful blockchain adoption would be financial service firms “that have all these things that they get paid all these fees for.”

Garlinghouse agreed with Hutchings, and referred to the $8 billion in profit Citibank generates each year through fees on money transfers. Neither referred to SWIFT directly, but as the leading global inter-bank payments facilitator, its clear any disruption to the current model would have huge implications for SWIFT. Underscoring the point, Garlinghouse said that it was possible to debate whether Ripple itself would ultimately be successful, but that major disruption was going to come to this sector, one way or another.

If Leibbrandt is worried about any of this, he certainly wasn’t showing it when he posed a question to another panel at Davos. The panellists had been debating the topic of ‘Creating a Sustainable Crypto Architecture.’ When fielding questions from the audience at the discussions end, the panel host introduced Leibbrandt as the one person in the crowd ‘brave enough’ to state crypto wouldn’t last. When Leibbrandt then introduced himself as CEO of SWIFT, it drew a boisterous laugh from Elizabeth Rosiello of BitPesa. “Of course!” she exclaimed, before Leibbrandt laid out his issues with cryptocurrency’s long-term viability.

Leibbrandt drew more laughs with an opening withering putdown: “We’re definitely in a different world from last year… we have empty seats in the crypto session [and] all the male panellists are wearing ties.” Leibbrandt went on to outline three key ways in which thousands of years of monetary history have proved regulation and the oversight of central banks are essential for a functioning economic system. Referencing bank runs and similar catastrophes, Liebbrandt stated that “when things go bad with money, they go bad in a big way.” He then added that regulation and oversight was essential for stopping customers getting screwed or swindled, and that regulation was vital to stop “bad guys from doing things,” giving the example of regulation against money laundering. (To view the full exchange, watch this video from the 49th minute onwards.)

Building a Sustainable Crypto-Architecture

Bitcoin's valuation has plunged over 70% in just two years but technological and regulatory innovations keep advancing rapidly. Experts discuss the changes on the horizon for crypto-currencies.

Posted by Video – World Economic Forum on Wednesday, January 23, 2019

Liebbrandt’s points about regulation and government oversight were discussed during the other panel. Hutchings stressed that it was “extraordinarily important” for disruptors to the payment industry to “get things right” from a regulatory perspective from the outset. He referred to other disruptive tech sectors running into regulatory issues after achieving enormous success, giving the examples of IBM and Microsoft facing anti-trust investigations, and the mounting likelihood of Google and Facebook having to answer serious questions about their impact on users’ privacy. Garlinghouse agreed, and talked about how Ripple have met directly with regulators in the USA and other countries to “try and educate them” about what exactly Ripple is trying to accomplish.

For the record, Garlinghouse was the only male panellist wearing a tie during this discussion. And Rosielo was quick to respond to Liebbrandt’s implication that SWIFT was a safer alternative to blockchain-driven disruptors, mocking SWIFT for joining the Bill & Melinda Gates Foundation to “repent for their ways” and excluding half the world’s population from global finance. This issue was touched on by Yeung on the Garlinghouse panel, who expected blockchain-based fintech to experience its fastest growth in Asian countries with limited access to traditional banking infrastructure. And panellists in both discussions referred to crypto’s ‘image problem,’ stemming from its long-held association with the illegal Silk Road marketplace and other dark web applications.

While neither Garlinghouse nor Liebbrandt made direct reference to the other or the companies they represent, a lot of what was said would classify in hip-hop terminology as throwing out subliminals. Whether or not this escalates into full-blown verbal warfare at the Paris Fin-Tech Forum, there is ample evidence that the financial services industry sees Ripple as a serious threat to SWIFT’s business model.

Ripple v SWIFT: A Battle for the Future of Finance

If you google ‘Ripple v SWIFT,’ one of the top results is an American Express examination of the two payment solutions:

“For more than 40 years, the vast majority of B2B cross-border payments handled by banks have been supported by financial messaging provider SWIFT. But today, banks are under pressure to improve cross-border payments, which are often seen by customers as expensive, slow and opaque…. Accordingly, SWIFT faces growing competition, chiefly from Ripple, a financial-technology (fintech) blockchain startup that promises to complete inter-bank cross-border payment transfers in seconds. At the same time, SWIFT is working to accelerate payments over its own network with the SWIFT global payments innovation (gpi) initiative, which promises same-day cross-border transfers, transparent fees, and payment tracking.”

The article goes on to describe SWIFT’s key advantage it in its current form being its ubiquity, with “more than 11,000 financial institutions [using] the service worldwide in more than 200 countries and territories, making it possible to transfer money to and from practically every country.” The downsides are that the service is slow, “often taking days to complete,” with it also being difficult to determine when and if the payments have been received. The cost is also described as “relatively high” and “hard to predict,” with banks adding arbitrary additional costs “about which the payer may not be informed in advance.”

Ripple is growing quickly, recently reaching a milestone of 200 financial institutions utilizing its services. New institutions are signing up with Ripple constantly, with the Saudi British Bank (SABB) announcing its participation within the past few days. And there can be little doubt that Ripple’s growth poses an existential threat to SWIFT, following reports that Euro Exim Bank recently switched from SWIFT to Ripple’s xRapid service after a SWIFT-based inter-bank payment apparently “lost somewhere in the quagmire of a central organization” with “no visibility on where it is.”

The experience of established companies ranging from Sears to Blockbusters shows that big players in any industry can quickly slip into obsolescence if they fail to respond to the challenge posed by technological disruptors. As detailed in the American Express article, SWIFT’s gpi initiative is intended to provide many of the same benefits Ripple offers for payment processing. Focusing on “cross-border payments, end-to-end tracking, and greater cost transparency,” gpi was processing $100 billion worth of value transfers per day by February of 2018, with 50% of these transactions being completed in less than 30 minutes, and virtually all being completed within 24 hours. The service also offered “a cloud-based tracker,” enabling “banks to monitor the status of the payment as it moves along the correspondent banking chain and eventually reaches the recipient’s account.” By the end of 2018, SWIFT reports that gpi transfers accounted for 55% of its cross-border payments, with a goal of gpi accounting for 100% of such payments by 2020. Recent figures from an article on FinTech.Asia state that gpi’s daily transfer value has grown to $300 billion, with SWIFT’s overall activity increasing by 56% over the past five years.

Despite the clear advantages gpi offers over its previous cross-border payment solution, SWIFT is still some way from matching the near-instant payment processing which Ripple makes possible. Ripple’s biggest challenge is overcoming SWIFT’s entrenched market dominance. As industry news site FinExtra notes, “Ripple payments as with any disruptive technology face resistance in adoption of this technology and few banks have adopted this.” The recent landmark of 200 institutions utilizing its services shows that Ripple is making headway in this area, but it still has a long way to go to topple the giant that is SWIFT. But the response of those banks which have made the switch has been uniformly positive, with Banco Santander Executive Chairman Ana Patricia Botín-Sanz recently praising the effectiveness of Santander’s Ripple-enabled One Pay FX service.

xCurrent v xRapid: A Battle for the Future of XRP

As the number of financial institutions utilizing Ripple’s services continues to grow, it can be difficult for the its many supporters within cryptocurrency communities to keep track of its seemingly exponential growth. However, Ripple’s many critics and detractors would caution that it can be equally difficult to draw a clear distinction between the various products and services the company offers.

And as this article on Ripple’s official website explains, the range of services on offer is expanding. RippleNet is the term given to Ripple’s global payment network – “the world’s only enterprise blockchain solution for global payments.” Financial institutions which are RippleNet customers utilize a variety of services from within the Ripple Product Suite. These include xCurrent, xRapid, and xVia.

Ripple describes xCurrent as an “enterprise software solution that banks and other financial institutions currently use to instantly send and receive cross-border payments with end-to-end tracking and bidirectional messaging across RippleNet.” xRapid “uniquely uses XRP to lower the liquidity costs of payments in emerging markets.” Payments into these markets typically requires prefunded accounts in the local currency, vastly inflating their liquidity cost. xVia enable “data rich” value transfers, enabling value transfers that fully incorporate information contained within invoices and other similar financial logs.

XRP is a cryptocurrency created by Ripple that is available on most leading crypto exchanges. For the past few months, it has been duking it out with Ethereum to secure second place in cryptocurrency rankings. XRP holds this second place position at the time of writing, with its $12.91 billion market cap being a little less than $800 million greater than Ethereum’s $12.14 billion.

XRP’s primary use within Ripple’s core services is to provide liquidity to its xRapid payments. XRP isn’t necessary for xCurrent or xVia, and this has led many to question exactly how intertwined the long-term success of Ripple and its associated XRP cryptocurrency actually are.

Despite not being integral to some of its most popular services, XRP has been hugely important to Ripple’s growth as a company. The majority of XRP is locked up in an Escrow, with an article on Ripple’s website explaining how funds from this Escrow are released and utilized:

“We use Escrow to establish 55 contracts of 1 billion XRP each that will expire on the first day of every month from months 0 to 54. As each contract expires, the XRP will become available for Ripple’s use. You can expect us to continue to use XRP for incentives to market makers who offer tighter spreads for payments and selling XRP to institutional purchasers… We’ll then return whatever is unused at the end of each month to the back of the escrow rotation. For example, if 500M XRP remain unspent at the end of the first month, those 500M XRP will be placed into a new escrow account set to expire in month 55.”

A recent CNBC article explains how this “sizable cryptocurrency stake puts Ripple in an almost unheard of position in Silicon Valley of not needing to rely on much venture capital to fund its operations.” Ripple recently released its Q4 2018 Market Report, which included the headline-grabbing figure that the company sold $535.56 million worth of XRP in 2018.

The figure has generated a lot of headlines and discussions online. An article related to the report is currently the most upvoted post on the /r/cryptocurrency subreddit. The comments’ section is currently topped by /u/jamespunk’s wry observation:


“There is a usecase afterall, enrich the creators, who would have known, hallelujah! Shocking. Also, ripple didnt create xrp. Buy more guys, these people really need your money”

Among the many echoing this sentiment is a user calling XRP “the single biggest ponzi scheme since Madoff.” Though in the minority, there are also comments arguing against this characterization, such as this comment from /u/Aszebenyi:

“Ripple releases a report with the numbers every month. All is transparent and this is nothing new. All the XRP gets sold at equal price or above market price. The XRP is to fund projects around the XRP ecosystem and to provide liquidity for xrapid.”

XRP and Ripple have always proved divisive among cryptocurrency enthusiasts, as they are seen by many as being representative of the very financial system which they regard Bitcoin’s primary goal of defeating. But long-held online disdain for XRP and Ripple may result in real-world consequences.

CNBC notes that the controversy surrounding the distinction between Ripple and XRP may have put “a target on their backs,” with multiple lawsuits targeting the company based on uncertainty surrounding it. The lawsuits detailed in the CNBC article include a plaintiff suing for $5 million in damages “on behalf of all California citizens who bought XRP,” alleging that XRP should have been registered with the SEC as a securities token. It also notes a $167.7 million suit filed by Israeli resident Avner Greenwald on behalf of “individuals who lost money after buying XRP.”

Stormy Waters Ahead?

Garlinghouse is quoted in the CNBC article as flatly rejecting claims that XRP should be regarded as a security: “It’s really clear that XRP is not security… If Ripple the company shut down, XRP would keep trading.” CNBC seem to treat these claims with some scepticism, noting that if “XRP ever shut down, Ripple would surely struggle.”

But the article does mention several good omens for Ripple regarding the controversy surrounding the role of XRP in its fortunes. Firstly, the SEC has officially declared Ethereum “not a security.” Secondly, “Ripple is being represented by former Securities and Exchange Commission Chairwoman Mary Jo White” in one of the lawsuits that has been filed against it. Both of these facts would suggest XRP stands a decent chance of being declared “not a security” by the SEC.

And among the latest financial institutions to join RippleNet, five will be utilizing the XRP-dependent xRapid service. As the only one of its flagship services to use XRP, xRapid should be seen as absolutely essential to the long-term viability of Ripple’s cryptocurrency.

The huge sums of money that XRP has allowed Ripple to generate have been immensely helpful in allowing it to scale up to a point that it poses a viable threat to an entrenched industry giant like SWIFT. But there’s no telling just how damaging it could be for Ripple if XRP were to be categorized as a security. Whatever the outcome, it certainly seems plausible that many of those who have bought XRP are less than fully aware of exactly where the distinction between the company and its crypto lies.

During the panel at Davos, Garlinghouse said that industries tend to overestimate the short-term impact of new technologies and underestimate their long-term impact. He added that it was likely to be five years until we see real transformation brought about through blockchain. Ripple’s mission to transform cross-border payments and the use of $10 trillion associated with it has already set in motion major changes within global finance. The biggest question now is who’s going to benefit from those changes.

About Christopher Williams

Christopher Williams is a British writer based in South Korea with a strong interest in emerging technologies, cryptocurrency, and the development of decentralized apps.

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