Ripple is the new blockchain based technology tool for Banks to transfer money. With just 200 Banks already on RippleNet, is it premature to ask the question – Will Ripple replace SWIFT ? 1
San Francisco based Ripple is creating ripples in the Middle East Region for its Blockchain based money transfer tool. Ripple wants to challenge SWIFT’s dominant position of the de facto technology for money transfer.
What is Ripple?
Ripple is a “for profit” technology company which has developed blockchain based applications for Real Time Gross Settlements (RTGS) between Banks. Ripple has two products, xCurrent and xRapid, of which xRapid is based on Ripple’s own cryptocurrency XRP.
Over 200 banks are part of the RippleNet, including big names like Standard Chartered, Bank of America, UBS and RBC.2
Santander Chairman Ana Botin has praised the xCurrent application which they have been using for FX transactions to four countries, which covers half the bulk of the bank’s retail consumers. 3
Ana Botin – Chairman Santanders
“You can do FX transfers, real-time, between the UK and continental Europe. And you can do Poland, Brazil, and Chile – through Santander – for the same cost as TransferWise. And that is the reason why we need to really think about what is real reciprocity. The devil is in the details and the timing.”4
What is SWIFT?
SWIFT is a 50-year-old financial information communication technology to transfer funds between banks through a network on intermediary banks. It is a cooperative owned by over 11,000 banks.5
But does SWIFT need to disrupted?
The technology was created in the 1970’s and the minds at Ripple think it is ripe for disruption. The question is will Ripple replace SWIFT or is that going to be another application?
Note – SWIFT has also been working on its own Blockchain tech called “innotribe”.
The Problems with SWIFT
Money is either transferred by Demand Draft or digitally via SWIFT, Digital transfer via SWIFT has problems such as errors, delay, higher costs, transparency to list a few major ones.
Errors – As high as 5%
SWIFT has an error rate as high as 5%. 6
Delay of 3 to 5 days for remittance
It takes over 3 to 5 working days for funds to reach the destination bank. They can complete the same transaction on Ripple in 3 to 5 seconds. This will have an enormous impact on Working Capital of Businesses which in turn create a positive multiplier impact on the country’s economy.
UAE the 4th Largest migrant corridor
From the migrants perspective, a cost saving and instantaneous money transfers could be a matter of life and death. Migrants could send more money at less costs with declining costs of remittance.
Lebanon’s inward remittances
Lebanon receives about 23 percent of its GDP via inward remittances from its diaspora.Lebanese Banks still haven’t yet embraced the blockchain tech but once the benefits are visible, I am confident our Banks would embrace the changes. 7
SWIFT is a messaging tool which tells one bank to debit an account and credit another. Ripple also does the same but enables 2 way communication. Since the transaction is in real time, there is no anxious waiting for funds to reach the destination account.
Many intermediary Banks in different time zones are involved in a SWIFT transaction. The corresponding banks will charge a fee to both sender and receiver as per the prevailing exchange rates. 8
A World Bank Figure suggest that the cost of such transactions is about 7.1 percent of the over all value and blockchain technology could reduce it by almost half. Considering the size of the remittance industry it is no surprise that Ripple has found rapid adoption in Middle East. 9
Partnerships in Middle East
- National Bank of Abu Dhabi (NBAD) formed a partnership with Ripple. 10
- UAE Exchange, the largest payment solution provider has joined RippleNet to
speed remittance flows between India and Middle East through an
arrangement with UAE’s RAK BANK. 11
- RAK Bank adopted RippleNet in late 2017 to offer money transfer services to
India’s Axis Bank customers. 12
- In Feb 2018 Saudi Arabia’s Central Bank signed up with Ripple to facilitate
payments among banks in the kingdom. 12
- National Bank of Kuwait (NBK) was the first bank in Kuwait to joined RippleNet. 12
- KFH is the first Islamic bank in Kuwait to partner with Ripple 12
Why Remittance Industry is important to the Middle East
Middle East contributes 13% to the global remittance market. The Global Remittance market size is USD 625 billion in 2018.. The migrants population in several GCC countries outnumber the natives by several times. 13
Considering this huge market size it is not surprising that financial institutions in the middle east have been signing up with Ripple.
What is the competition for Ripple?
Stellar a “not for profit” company which has similar tool to move money across borders.
Note – Stellar is a fork of Ripple.
If you know any other disrupters in the remittance industry space. Let me know in the comments