Opinion: Recent news has emerged that Santander is one of the first banks to adopt SWIFT’s [Society for Worldwide Interbank Financial Telecommunication] Global Payments Initiative [GPI]. However, this presents a conundrum, as Santander was also one of the first banks to utilize Ripple’s xCurrent technology on a large scale with its OnePay FX app.
This has led many to believe that Santander is beginning to move away from Ripple’s solution to what they chose it over. However, it is a confusing move, as the bank also has an investment in Ripple, the company, representing skin in the game.
To understand the consequences of the SWIFT-Santander partnership, it is important to know what the GPI is. The Global Payments Initiative is a way to optimize the existing infrastructure for faster cross-border payments.
Cross-border transactions have two significant steps that take place, with those being the initiation of the payment and the settlement. In an ideal situation, the payment is initiated through the GPI messaging system, with settlement occurring between the two banks if they have an existing pre-funded solution for liquidity between the currencies being traded.
Even as SWIFT has a huge lead over Ripple in terms of members, clocking in at just over 11,000, the GPI is still a messaging system. While this allows for faster payment across borders, the settlement still takes around 2-3 days in an average situation. This is due to the various steps the value has to go through, with SWIFT actually handling none of the money, only providing a secure messaging service.
GPI does make a lot of improvements over the existing systems, including end-to-end tracking of payments in real time, transparent fees and FX, unaltered remittance data, and reduced costs stemming from a variety of optimizations with the way the information is handled.
Moreover, the GPI can be adopted with ease by existing customers, as seen in the case of Santander. This is said to take a time period of about 3 months. This, along with the statistic of 50% of GPI payments crediting in less than 30 minutes, offers incentives for banks to stick with their existing service.
However, Ripple’s solutions bring a lot more to the table. While their xCurrent solution presents clients with a similar solution to the GPI, the true purpose and vision of Ripple’s products lie in xRapid.
xRapid was launched during Ripple’s Swell conference, at the beginning of this month. It aims to improve on SWIFT by not only facilitating payments by a messaging service but also serves as a vehicle for the payment to move across borders and settle in minutes.
xRapid achieves this through use of the XRP Ledger, utilizing the blockchain’s native cryptocurrency as a bridge currency between two fiats. This is done by trading at exchange platforms in the sending and receiving ends, and then sending the exchanged fiat on local payment rails.
Ripple is developing a network of banks, with the number being just shy of 200. This is called RippleNet, with all members utilizing xCurrent or xRapid for settlement. However, with emerging regulatory norms and clarity in the cryptocurrency space, Ripple aims to push xRapid on the customers who are currently utilizing their xCurrent project.
With Santander’s OnePay FX app currently in full swing, xCurrent is said to have captured over 50% of the bank’s transactions. In a podcast in April, Ana Botin, the Santander Group’s Executive Chairman, confirmed this statistic.
With the eventual coming of xRapid, banks will not be required to hold pre-funded liquidity in the form of nostro and vostro accounts. Instead, they can source liquidity from retail investors trading XRP on exchange platforms. This, coupled with the speed and fees improvement over existing systems that customers have mentioned, makes RippleNet a viable option for banks.
While SWIFT is still in the lead, with a commanding 45 years in the field, the decentralized on-demand liquidity, transparent settling, and benefits of xRapid might see a greater degree of adoption among financial institutions focused on cross-border payments.
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