The latest blog post of the World Bank discusses the payment on the Distributed Ledger Technology (DLT). In the article “Paying across borders – Can distributed ledgers bring us closer together?” the Ripple Technology xRapid, which is based on the XRP token, was praised in particular.
A new paper written by Better Than Cash Alliance members and the World Bank’s experienced financial sector specialist, Marco Nicoli, calls traditional business-to-business transfers “slow and opaque” because they require intermediaries. In return, the paper highlights the importance of distributed ledger technology for remittances for and in emerging markets and highlights the transformative potential of xRapid technology.
These shortcomings make the cross-border payment industry ripe for disruption and innovation. Some see Distributed Ledger Technologies (DLT) as the potential to drive industry-wide change. Indeed, cross-border B2B payments, traditionally characterized by fragmentation and opacity, are a potential use case for the successful implementation of DLT.
The report explicitly praises Ripple’s xRapid as a real solution that is “actively tested” in the marketplace. The World Bank noted that the testing of xRapid in 2018 was very successful. Last year, Ripple was able to take the first payment corridors with xRapid into productive operation and was able to demonstrate in live operation that cross-border payments using the “bridge currency” XRPn took only two to three seconds. Although it was a competitive corridor in the USA, the xRapid technology represents a significant leap forward, the article states:
In 2018, Ripple, a FinTech company, tested xRapid, a DLT-based solution for cross-border payments, along the highly competitive USA-Mexico corridor. The financial institutions involved in the pilot project saved 40%-70% of exchange rate costs, and average payment times were just over two minutes. The money transfer to xRapid took two to three seconds, with most of the processing time coming from domestic payment channels and intermediary digital asset exchanges.
The paper also highlights attempts by incumbents to improve their transfer costs and speed, referring to JP Morgan Coin and Swift’s Distributed Ledger Proof-of-Concept as two examples. Regarding the question of whether distributed ledgers will dominate cross-border payments in the long run, the World Bank says this remains an open question.
Whether DLT will be an effective solution to the remittance industry’s challenges and when the technology will reach a level sufficient to effectively disrupt this space remains to be seen. In any case, there are plenty of opportunities – and of course needs – for innovation in cross-border payments.