Ripple is a leading provider of cross border payments based on an underlying blockchain architecture and their own XRP utility token. If blockchain is the rails then the XRP token is the mechanism of transfer, or the train engine which is encoded with payment information and delivers transaction data between two points. The speed, transparency and low cost per transaction of utilizing Ripple’s services is a direct challenge to the legacy payment companys’ highly profitable and slow international money movement infrastructure. For example, a cross border payment, particularly business-to-business transactions, may require two-to-four days to settle and hundreds of dollars in fees. One of the reasons for this is the lack of a global clearing system between banks which guarantees timely delivery of good funds. The other is certain financial institutions, like custodian banks, may use another, larger bank as a funds transfer intermediary which slows down the process and drives up costs (the correspondent banking system). Furthermore, there is a capital expense if the receiving business needs those funds and borrows against it until the international settlement is finalized.
Enter the Ripple network which is designed for near instant cross border payments at a fraction of traditional costs. Since its inception in 2012, Ripple has enabled 27 million transactions worth $50 billion, employs roughly 900 staff in 15 technological and financial centers around the world, and operates in 80 countries globally. The company has attracted a ‘who’s who’ of Venture Capital investors and technological partners.
However, customer adoption in the US has been slow and the US regulatory environment has been a massive constraint. Recently, a federal judge handed down a $125 million fine to Ripple over the sale of XRP tokens to investors as unregistered securities. On an absolute basis the fine amount may appear large, but this was considerably less than the $2 billion the SEC was looking for (one reason for this was that no investors were harmed). News reports suggest both the company and the SEC may appeal. Regardless, in our opinion, XRP has demonstrated useful functionality and business overseas is growing. Ripple operates at the nexus of a changing industry, international payments and crypto regulation, and has become an industry benchmark.
For those interested in overseas business-to-business payments, Ripple is a fascinating solution and an education in the future of money movement.
