Ripple is adding high profile banks to its roster of clients at some speed as it promises to create an ‘internet of value’ in the payments world. There are even rumours that it will partner with Amazon.
Meanwhile SWIFT released an update, SWIFT global payments innovation (gpi) in February 2017, which has taken the correspondent banking world by storm. It now has about 11,000 banks in the SWIFT network – a reach that no other payments network can offer.
Banks such as Standard Chartered, Santander and Swedish SEB bank are proud users of blockchain payments technology Ripple and SWIFT. While both companies offer enhanced cross-border payment capabilities, they both deny that they are direct competitors.
Albert Maasland, CEO of Crown Agents Bank – a global transaction bank for emerging markets, says that SWIFT gpi and Ripple are “obviously two key players,” in the cross-border payments space.
“Ripple may well gain a lot more traction. It has gained a lot of attention but has not been properly tested yet,” he tells GTNews.
However, he adds: “It would be foolish to disregard SWIFT gpi. They are in a good position if they continue to develop. We see our role as supporting different initiatives. It is not about supporting only one.”
Of course, it is important to remember that neither Ripple or SWIFT are one-time projects. Both are planning future releases and many banks and corporates are working together to produce SWIFT’s future roadmap.
Is it a case of David versus Goliath?
It can be very enticing to create a ‘David versus Goliath’ narrative around SWIFT gpi and Ripple, but this isn’t exactly the case, says Shirish Wadivkar, global head of corresponding banking products, Standard Chartered.
“In reality, the two providers are offering different approaches to the market, and there are benefits to be derived from both,” he argues. “The competition is also far from binary, with a multitude of payment companies becoming increasingly innovative.”
“Neither the corporates or the banks are in love with any particular technology. We are all more interested in solving the issues with international payments,” Wadivkar tells The Global Treasurer.
Standard Chartered uses both Ripple and SWIFT. BNP Paribas has been very vocal in its support of SWIFT gpi but is also exploring blockchain-based payment technology.
Damien Godderis, senior product manager, international payments and correspondent network, BNP Paribas Cash Management, says the two companies are competitors in some cases, but not in others.
There are some key differences, for example, SWIFT gpi is a network of banks whereas Ripple technology is sold as a product to individual banks.
Marcus Treacher, senior vice president of customer success at Ripple, tells The Global Treasurer: “SWIFT doesn’t really compete [with Ripple] in our view. SWIFT gpi has been around for a long time and it is making the SWIFT process a little less painful by adding more messaging and control into a 20th-century model.”
He argues that Ripple is doing something different. “We are thinking about how money moves in a very different way. We are creating an internet of value.
“SWIFT gpi will improve things a little bit but it won’t really match the speed, efficiency and visibility that we create with the Ripple network, so we don’t look at them as a serious long-term competitor.
“SWIFT gpi will improve things a little bit but it won’t really match the speed, efficiency and visibility that we create with the Ripple network, so we don’t look at them as a serious long-term competitor.”
Treacher argues that Ripple is the only market player that has created a solution that connects everyone in the world.
“It will work like the internet does. You will be able to download money as data on your mobile phone. It is very fast and accurate, and we are creating a model where money will move inexpensively, safely and securely,” he says.
BNP Paribas is a strong supporter of SWIFT gpi but is exploring other payment technologies, such as Ripple, and is developing its own internal payments tool using blockchain.
Wim Grosemans, global head of product management, payments and collections, BNP Paribas Cash Management, believes that blockchain technology is less suitable for facilitating the high volume of ACH payments.
“Blockchain is never real-time. It is always near real-time,” he says.
“We are seeing instant payment initiatives all over the place – they are typically not using blockchain technology,” adds Grosemans.
Wim Raymaekers, global head, banking market and head of SWIFT gpi, comments: “While there are a number of payment providers and fintech companies proposing new technologies, we are in a unique position since SWIFT gpi has already been adopted by more than 150 financial institutions around the world.”
How does the reach compare?
Hundreds of thousands of payments, representing nearly 10% of SWIFT’s cross-border payments traffic, are being sent daily across 220 international payment corridors, according to Raymaekers.
These figures are something Ripple is yet to come close to.
Godderis says other major banks are using SWIFT gpi in the same way that BNP Paribas does.
“As soon as we see that another bank is connected to SWIFT gpi any flow between the two banks is then processed using SWIFT gpi rather than the older version of SWIFT. It is a clear switch,” he explains.
“Ripple’s reach is lower than SWIFT’s, so they don’t really compete exactly in the exact same area. However, I believe initiatives like Ripple are pushing SWIFT to innovate which means that they see Ripple as a competitor,” says Godderis.
“I believe initiatives like Ripple are pushing SWIFT to innovate which means that they see Ripple as a competitor”
“It is mainly used to send point-to-point payments between two banks and not really a payment with multiple banks in the chain,” he adds.
One debated issue surrounding SWIFT’s reach is who is responsible for recruiting new members to the network.
Godderis argues that the responsibility falls on banks, corporates and SWIFT itself.
Ripple does not have this issue as it functions as a technology company that sells its software, as opposed to SWIFT which operates a centralised payments network.
Harvesting payment data
While everyone agrees that improved cross-border payment processes, transparency on end-to-end fees and instant payments are desirable, most corporates have a majority of bulk payments that are only required to be paid within 30 days.
“Clients don’t want to track every cross-border payment, they just want to be able to do them for a low price without any hassle,” says Godderis.
The reason why international payments are viewed as clunky or inefficient is because they are being cleared by multiple banks across several geographies.
Wadivkar says: “It is very seductive to say that international payments are broken today but actually that is not true. What they are is not very transparent.”
“It is very easy and very seductive to say that international payments are broken today but actually that is not true. What they are is not very transparent”
Godderis argues: “Here the biggest challenge is data.”
There is a lack of transparency on fees, data on where a payment is and certainty on whether the payment will be delivered or not.
Wadivkar argues that financial services need something akin to WhatsApp. This consumer messaging app notifies users with a single grey tick when a message has left their phone, a double tick when it has reached the recipient’s phone and two blue ticks once it has been read.
Even if a payment is settled in real-time, the main difficulty remains the reconciliation of the data to understand which of the invoices have and hasn’t been paid.
SWIFT is also considering moving from an MT to a mixed messaging in the future, according to Godderis, “but all of that will take time,” he says.
“Clearly there is a need for the bulk of most corporate payments to have end-to-end efficiency rather than immediate settlement.
“One day, the market standard for doing those payments will be done on the same day. They will expect banks to do that, but it is not their primary preoccupation,” Godderis adds.
Ripple cannot compete with SWIFT it doesn’t (yet) cover all country/currency corridors, according to Grosemans, but it can provide broader and higher quality payment data than SWIFT, he says.
“However, if the beneficiary bank is not a Ripple bank, you will be back to classic payment rails – SWIFT or domestic schemes – and then you will have to use the existing technology,” says Grosemans.
Wadivkar takes a different view. He argues that SWIFT gpi’s currently lacks certainty on payments, which is something that Ripple offers.
With SWIFT gpi, payments will travel to another bank and could still end up failing, for example, if there is something wrong with the account numbers or the bank doesn’t want to accept it, he argues.
Whereas, “if we have the same two banks on a RippleNet connected network, then the certainty of the transaction is known upfront,” explains Wadivkar.
The payments revolution paradox
While many (including The Global Treasurer) have spoken about the ‘payments revolution’, it is perhaps ironic that the industry can only work on the basis of small, incremental changes.
“If you compare today with where we will be in two to five years, I’m sure that we will be able to speak about the revolution. However, the market is not able to handle the revolution,” explains Grosemans.
“We can only work on the basis of small incremental changes in use cases with added value as nobody in the market is willing to set aside their legacy and start building a new infrastructure from scratch,” he says.
The pressure to use more data in payment processes and work on a real-time basis is coming from all angles, whether its Ripple, SWIFT or Open Banking or instant payments initiatives in Europe.
“To work on a real-time basis is a huge change for banks,” says Grosemans.
“Some corporates will be agile, some will not be. Some banks will be agile, some will not be. This means that we are obliged to work incrementally so I find talking about the payments revolution a paradox.
“Some corporates will be agile, some will not be. Some banks will be agile, some will not be. This means that we are obliged to work incrementally so I find talking about the payments revolution a paradox.”
“Yes, there is a massive number of opportunities, but the pace of change will vary,” he adds.
Maasland agrees: “Complete transformation comes with tremendous complications. Many fintechs are not regulated, but that is not always good as regulation prevents financial crime.
“Something that allows financial crime is unlikely to have a future.
“Most traditional banks are cumbersome because they are highly regulated and designed to prevent financial crime,” he argues.
Who do you trust?
It has been argued by some that SWIFT is a more trusted tool than Ripple, simply because the technology has been around for longer.
Shirish Wadivkar, managing director and global head of corresponding banking products, Standard Chartered, says he trusts neither.
“Trust in an institution alone isn’t enough, we have to have our own permission testing, ethical hackers and testing of third-parties in our own labs,” Wadivkar tells The Global Treasurer.
“It is not just about trust. The reason SWIFT is important because it has 11,000 banks on it. It can get to scale faster. Overall, nearly 50% of SWIFT gpi payments are credited to end beneficiaries within 30 minutes with SWIFTgpi.
“I would work with both because they help me solve my clients’ problems using two different approaches, but at this time SWIFT has a better scale, helping me to solve my clients’ problems faster,” he says. This is proved by the latest statistics that have been released by SWIFT that almost 100% of payments are credited at end beneficiaries within 24 hours of inception.
“This does not mean it is a better solution as Ripple has better visibility and certainty surrounding the payments,” Wadivkar adds.
Are either offering the perfect solution?
“There is some version of the future where Ripple and Swift can co-exist,” Wadivkar concludes. “It may not be in the way, shape and form we see today, but the technologies are both too good to declare a winner and deny the world of the other at this point in the time.”
“Which version of SWIFT and Ripple will become the future version is for them to decide. As participants in the financial markets, it is our job to participate and to make sure I have turned over every single stone in solving the clients’ problems,” he explains.