{"id":6602,"date":"2018-02-02T08:06:48","date_gmt":"2018-02-02T13:06:48","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system\/"},"modified":"2018-02-02T08:06:48","modified_gmt":"2018-02-02T13:06:48","slug":"ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/ripple-the-disruptor-to-the-forty-years-old-cross-border-payment-system\/","title":{"rendered":"Ripple, the disruptor to the forty years old cross-border payment system"},"content":{"rendered":"<p>Cross-border payments today are inefficient, expensive and opaque.<\/p>\n<p>The Global Interbank Financial Telecommunication Company (SWIFT) established in 1973 is still the most widely used method to send cross-border payment using the transmission of financial messages via the international SWIFTNet network.<\/p>\n<p>However, the SWIFT financial messages do not hold accounts for its members nor make any form of clearing or settlement. It essentially only sends payment orders which need to be settled by the correspondent account that the institution has with each other. For this reason, each financial institution needs to have a banking relationship to exchange banking transactions.<\/p>\n<p>This is why it requires 6 players linked up \u2013 payer, payer\u2019s bank, payer\u2019s bank\u2019s correspondent, beneficiary bank\u2019s correspondent, beneficiary bank, beneficiary to complete cross-border payments.<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-6599\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11.png\" alt=\"\" width=\"500\" height=\"341\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11.png 775w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-300x204.png 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-768x523.png 768w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-600x409.png 600w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a>[1]<\/p>\n<p>There are many obvious drawbacks of such system:<\/p>\n<ul>\n<li>Cross-border payments can be expensive and sometimes even charged a percentage fees<\/li>\n<li>Extra fees such as \u201clifting fees\u201d or correspondent banking fees by intermediary banks are common<\/li>\n<li>Bank keep the money for extra time and delay the payout \u201cfloat money theft\u201d<\/li>\n<li>Exchange rate can have big spread<\/li>\n<\/ul>\n<p>The high processing costs, lengthy settlement times and a poor customer experience prevents many new usage scenarios such as on-demand, low-value cross-border payment or mobile wallets. It is estimated that $1.6T per year for all parties in the ecosystem has spent yet unable to meet today\u2019s cross-border payment need[2].<\/p>\n<p>Ripple Labs (formerly OpenCoin) launched in 2012 with a mission to build a cross-border, interbank payment and settlement network using the concepts behind bitcoin. Ripple offers sub-second cross-border payments with automated best pricing from its network. As payments are nearly instant, it helps to remove the credit and liquidity risk from the process, lowering overall costs considerably.<\/p>\n<p><strong>\u00a0How is it done?<\/strong><\/p>\n<p>The core of its solution is RippleNet, a single, global network of banks that send and receive payments via Ripple\u2019s distributed financial technology &#8212; providing real-time messaging, clearing and settlement of transactions.<\/p>\n<p>RippleNet utilizes a subset of blockchain technology used in bitcoin. It uses the consensual validation of encrypted hashes to secure the messages across the Ripple network but does not hold the ledger, unlike bitcoin. Ripple names this open, neural protocol Interledger Protocol (ILP). ILP allows Ripple to connect existing bank ledgers, similarly to how banks connect their core system to the SWIFT network.<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-1.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-large wp-image-6601\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-1-1024x634.png\" alt=\"\" width=\"640\" height=\"396\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-1-1024x634.png 1024w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-1-300x186.png 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-1-768x476.png 768w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-1-600x372.png 600w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/11-1.png 1253w\" sizes=\"auto, (max-width: 640px) 100vw, 640px\" \/><\/a><\/p>\n<p><strong>Key Benefits<\/strong><\/p>\n<ul>\n<li>Enhance Customer Acquisition And Retention<\/li>\n<\/ul>\n<p>Offering this on-demand, high-speed payment services to retail and corporate customers, it provides an opportunity to attract and retain customers.<\/p>\n<ul>\n<li>Lower Operational Costs<\/li>\n<\/ul>\n<p>Payment processing cost is significantly reduced by eliminating SWIFT fees and other inefficiencies in the system such as liquidity costs, counterparty risks and compliance costs. It is estimated that the overall cost per payment can be reduced 60%, from $5.56 to $2.21.<\/p>\n<p><strong>Further Innovation<\/strong><\/p>\n<p>Ripple Labs also issues its own digital currency XRP. XRP can be used on the Ripple network to lower liquidity costs while minimizing settlement risk and delays. Using XRP, bank and non-bank payment providers can source on-demand liquidity from digital asset exchanges to process cross-border payments.<\/p>\n<p>According to Ripple [2], XRP offers extra advantages on top of existing RippleNet:<\/p>\n<p>Payment provider: Non-bank providers of cross-border payments allows customers to route payments through XRP, an improved experience at the lowest cost.<\/p>\n<p>Exchange: Exchanges listing XRP can increase volume by enabling payment providers to send payments using XRP.<\/p>\n<p>Banks: Using XRP, banks can source liquidity on demand in real time without having to pre-fund nostro accounts.<\/p>\n<p>Generally the international remittance is 20.9 bps against the settlement amount. Using Riiple&#8217;s digital currency XRP, it can reduce to 8.3 bps, 60% cost reduction.<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/SBI-Ripple-cost-advantage1-1024x753.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-6600\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/SBI-Ripple-cost-advantage1-1024x753.png\" alt=\"\" width=\"600\" height=\"242\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/SBI-Ripple-cost-advantage1-1024x753.png 939w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/SBI-Ripple-cost-advantage1-1024x753-300x121.png 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/SBI-Ripple-cost-advantage1-1024x753-768x309.png 768w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/02\/SBI-Ripple-cost-advantage1-1024x753-600x242.png 600w\" sizes=\"auto, (max-width: 600px) 100vw, 600px\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p>[1]\u00a0<a href=\"https:\/\/www.atc.asia\/articles\/170105\/aca161124ripple.pdf\">Ripple vs GPII \u00a9 David Blair 2016<\/a><br \/>\n[2] <a href=\"https:\/\/ripple.com\/files\/ripple_solutions_guide.pdf\">https:\/\/ripple.com\/files\/ripple_solutions_guide.pdf<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ripple uses blockchain technology to disrupt an old industry &#8211; cross-border payment<\/p>\n","protected":false},"author":2426,"featured_media":6603,"comment_status":"open","ping_status":"closed","template":"","categories":[1443,355],"class_list":["post-6602","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-blockchain","category-payments","hck-taxonomy-organization-ripple","hck-taxonomy-industry-financial-services","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/digital-winners-losers-2018\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - 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