For the last four years, Ripple Labs has been working to develop and scale a new technical infrastructure for sending money between banks and across borders using distributed ledger technology—the same stuff that powers bitcoin transactions. But instead of using bitcoin to move money, Ripple uses a digital asset called XRP. Unlike bitcoin, XRP is not a currency. It's a digital asset that carriers value across a blockchain system. The company's goal is to make the transfer of money instant and cheap.
It may not seem like a gargantuan task at first glance, but consider that in the U.S. we still can't send money between two different banks with any expediency. It takes JPMorgan Chase 1-2 days to send money from one of its clients accounts to an account at another bank using Chase Pay. Even Venmo, a PayPal-owned app that lets people send each other money, only makes speedy transactions when exchanges take place on the platform. To get cash from Venmo into your bank account takes a day or two. In an on-demand world, days are eternities.
International remittances, Ripple's area of focus, can take anywhere from one to four days depending on how it is sent. When two banks have integrated with Ripple, they settle funds transferred immediately. For instance if you were to transfer money in your bank account to a friend's bank account in Germany, your bank would take your money, convert it to XRP, and send it to the bank in Germany, which would then convert it to local currency and put it in your friend's account. Via Ripple this happens instantly. Because the transaction is largely automated it makes it less expensive than traditional money transfers too.
This strategy has largely paid off for the company. As of today, it's raised nearly $93.6 million in funding from big name investors like Andreessen Horowitz, Google Ventures, and IDG Capital. It has offices in San Francisco, New York, London, Luxembourg, and Sydney. It's also working with the Federal Reserve on how payments can expedited more quickly in the U.S. But that doesn't mean that it's a gravy train ride to the top for this blockchain company.
Since launching in 2012, the company has only signed on 15 banks into its network, which span the U.K, Germany, the United Arab Emirates, the U.S. Canada, and China. These include banks like Santander, UBS, ReiseBank, CIBC, National Bank of Abu Dhabi, Siam Commercial Bank, and ATB Financial. While Ripple can tout some big-name banks, its still only works with a tiny share of worldwide banks. For perspective, there were slightly more than 6,000 FDIC insured institutions in the U.S. alone as of August. Ripple has also signed partnerships, which it hopes will spread its network wider. Two are with Fortune 500 consultancies Accenture and Deloitte, entities that could encourage their banking clients to sign on with Ripple. The company is also working with U.K payments network Earthport, which aims to better connect major world banks, and CGI, a firm that has integrated Ripple into a payment gateway for financial services clients. But even with its existing progress, the slog to world domination is likely to take a while for Ripple.
Blockchain companies like Ripple hold a lot of promise for the future of banking, but the technology hasn't proven itself. Though certain states in the U.S. have begun framing rules around cryptocurrencies like bitcoin, blockchain technology itself hasn't been addressed. Over the summer, the European Union decided it would monitor blockchain efforts rather than creating laws around it. As long as regulatory bodies are unsure how to handle distributed ledger systems legally, banks may be wary to adopt it.
While Ripple and other blockchain innovators slowly grow, consumer level solutions are coming to the fore. TransferWise, a British company, currently offers to transfer money within 1 to 2 days for less money than it would normally cost to send cash across borders. It also promises to give customers an agreed-upon exchange rate for their money up front. Meanwhile PayPal's Xoom has been expanding its Instant Deposit program to certain banks in India and Pakistan.
In the U.S. same-day ACH is coming. That means that soon banks will be able to settle transfers send and receive money within a day (though this service may only be offered to customers with lower risk profiles depending on the bank or come with a fee). To send money domestically, Zelle, a bank-backed peer-to-peer payment app, is launching soon, with the intent of settling money quickly. Square Cash already provides instant settlements for its customers.
"I won’t pretend we don’t have a long way to go," says Brad Garlinghouse, Ripple's COO and president. He thinks that where perhaps Ripple has an advantage over some of these other players is that its technological infrastructure makes tracking money more transparent and less reliant on humans. Banks are responsible for tracking money sent and received, so when transactions don't happen they way they're supposed and money goes missing, banks are supposed to have the answers. What's appealing about blockchain technology, says Garlinghouse, is that it automatically documents how money moves in its ledgered system.
"I have had very senior people at the largest banks in the United States say to me if all you do is solve the transparency of the transaction, they are in," he says. As the Financial Times points out however, transparency may prove to be a double-edged sword. Banks want to see how money is moving from one institution to another, but they don't want other banks to have insight into their operations. Still, Banks ranging from Goldman Sachs to Deutsche Bank are currently exploring blockchain technology and its potential use in compliance reporting as well as smart contracts. It just may be a long time before the promise of blockchain technology and instant transactions becomes a reality for the majority of people.