New World vs. Old World Technology

Ripple vs. SWIFT gpi

On May 24th SWIFT announced that “25% of all SWIFT cross border payment traffic is being sent over SWIFT gpi, the most transformational change in cross-border payments in 30 years” italics mine. SWIFT followed up on June 4th with a webinar further extoling the benefits of SWIFT gpi. As an institution, SWIFT has to be recognized for its significant contribution to cross border payments since its founding in 1977, but it must also be recognized that SWIFT gpi is not transformational. In fact, SWIFT stands squarely in the way of the emerging and inevitable transformation of cross border payments facilitated by distributed ledger technology (DLT).

Most literature from SWIFT, or supporters of SWIFT, lead one to believe that funds are going over a SWIFT payment network. SWIFT does not make payments. SWIFT transmits information regarding payments made over the same rails that have been used for hundreds of years, i.e. payments which represent funds transfers between bank accounts, more often using multiple intermediary accounts in the process.

SWIFT was created by the banking industry to bring order and security to the increasing flow of cross border payments which had moved from postal or courier-based instruction to telex-based instructions after WW II. The cacophony of telex instruction formats and the scant security provided by reciprocal code books was brought under control by SWIFT messaging formats – the array of MT type messages - and the strength of advanced cryptography developed by SWIFT. Combined with a messaging network, the cross border payments world of transaction banking was brought into the 20th century.

Regrettably, SWIFT, and surprisingly a number of its bank supporters, continue to espouse old technology. It is particularly puzzling that Citi which has been the leader in bank investment in new technology should add it voice to the past in the SWIFT gpi webinar. SWIFT gpi is an attempt by SWIFT to paper over the deficiencies of its legacy system. SWIFT gpi begins to bring a degree of the transparency which the banks have been demanding for years, but which SWIFT ignored until the inadequacy of its legacy business model was exposed by the disruptive forces of DLT. In fact, the SWIFT gpi “Tracker” exposes in real time the complexities of the multiple players in the legacy payments chain, revealing the multiple rent takers and potential points of failure. Perhaps nice to know, but not transformational. What is more troublesome, is that SWIFT is requiring its banks to invest in an “upgrade” to their SWIFT systems which further entrenches the old rails. It is hard to understand how a bank owned cooperative is being allowed to lead the banking system down a retrogressive path investing in the past, not the future.

There are alternatives. The most viable option is RippleNet which offers the cross border payments world a distributed ledger-based payments network based solution. Ripple understands that DLT has fundamentally disrupted the old payments paradigm; that you can not put the genie back in the bottle. Ripple further understands that to effect change you need to re-do the infrastructure starting with the base rail and then innovate up the stack.

Starting with the vision of an internet of value - where money will move as information does today - Ripple has built a team of business leaders, state of the art technologists, knowledgeable and experienced bankers, reinforced by a first rate support staff, to create a product which dedicates DLT/blockchain solutions to cross border payments, and is committed to meeting customer needs for speed, transparency, lower costs and interoperability (with its Interledger Protocol - ILP).

The world of innovation is filled with firms eager to meet the needs of the vast payments market. The IBM/Stellar World Payment product is one of the best examples. But while competition is healthy, there is a critical need to build a sustainable modern means of transacting cross border before more time and money is squandered on old technology. This reality calls for the banking industry to get behind Ripple to facilitate the adoption of new technology for the payments ecosystem. Ripple’s lead position needs to be acknowledged and supported by the full spectrum of transaction banking practitioners whether in retail or whole payments, trade, custody, or lending products.

This highlights the debate which has been on-going for several years, Ripple vs. SWIFT. Those who understand what each firm has to offer appreciate that it is a choice between sticking with the past with SWIFT or moving to the future with Ripple. In fact, the SWIFT gpi webinar only served to highlight the fact that a number of the benefits which gpi will offer by 2020 in Phase 2 such as pre-validation, STP, and immediate confirmation, are today standard elements of Ripple’s offering.

One of Ripple’s challenges is being caught up in the fallout from the current cryptocurrency mania and the resulting misinformation and misperceptions. Many bankers conflate cryptocurrencies with digital assets used in DLT/blockchain payment applications. This lack of understanding has led to an unnecessary degree of caution re Ripple and its XPR digital asset, assigning XPR to the same basket of questionable, if not outright fraudulent, ICO cryptocurrencies. The differences could not be starker. XRP is not offered as a store of value but as a digital token used to transfer value, and when needed to facilitate liquidity. As the market become more educated, the clear differences will be understood.

Additional education will provide the understanding that XRP is but one element of the Ripple arsenal in meeting the operational needs of the modern payment ecosystem. At the heart of the Ripple offering is xCurrent, the core product to streamline the payments system, remove the multiple intermediaries, the uncertainties of time and cost, and to provide virtually instantaneous movement of funds between sender and receiver. Further, Ripple has attacked the payments ecosystem at both ends, retail and wholesale, laying the ground for the inevitable integration of retail and wholesale payments. A payment is a payment.

Bottom line: for the payments ecosystem to take advantage of the new technology, banks must get behind a leader to attain the scale essential to make the new technology enterprise ready. There is significant work to be done but Ripple is uniquely positioned to be that leader.