To build a proper cross-border payments network, the financial services industry needs to go beyond what it already has, according to Sendi Young, the new London managing director of Ripple in Europe.
“The challenges in today’s payments and banking infrastructure are pervasive and centered on legacy technologies that perform slow transactions, incur high fees, and are not transparent,” said Young.
Young is tasked with advocating the expansion of the company’s blockchain-based RippleNet network between the institutions of the European Union. In a recent interview, Young discussed how distributed ledgers can help banks overcome legacy payment processing, the potential of open banking in Europe and elsewhere to increase faster payments and liquidity for small businesses, and why she thinks banks are doing the no strategy for crypto are in trouble.
Banks “need to take new approaches to stay relevant and keep up with the competition, such as the adoption of blockchain and digital assets,” said Young. “It is clear that we have reached a turning point in the financial services industry. The companies that do not think about adopting any type of crypto strategy are inevitably left behind.”
The XRP token, which exists independently of Ripple, has been the subject of a dispute between the Silicon Valley company and the Securities and Exchange Commission over how the cryptocurrency should be regulated. Ripple has built a successful business using XRP’s underlying blockchain technology to support faster cross-border payments at a lower cost by eliminating the need for correspondent banks. Initially, banks viewed Ripple’s network as a threat, but in recent years Ripple has added banking partnerships and won deals from banks eager to improve e-commerce technology.
“RippleNet started out with an emphasis on remittances because of the significant frictions that were underserved by the current remittance media financial system,” said Young. New services for the age of open banking and embedded payments should enable small merchants to make payments and loans faster, she added.
“It is clear that we have reached a turning point in the financial services industry. The companies that don’t think about adopting any type of crypto strategy will inevitably be left behind, ”said Sendi Young, Ripple’s managing director for Europe.
This credit product called the Crypto Line of Credit helps provide liquidity on demand. Ripple uses the XRP token to bridge two currencies, allowing companies to eliminate pre-funding of bank accounts in the target market of payment.
The line of credit works like a “send now, pay later” service and gives a small business access to a loan from Ripple that sets a rate for cross-border transfer. Ripple uses XRP as a bridge between two different currencies to support faster processing of transactions between two countries.
A quarter of Ripple’s customers are based in Europe, and on-demand liquidity is up 250% in 2021 from 2020, reports Ripple.
These companies “didn’t have access to the same services … and sometimes had to use venture capital to fund payments,” Young said.
Ripple has expanded on-demand liquidity to other markets such as Japan. Last week, Ripple opened an XRP-to-traditional currency transfer corridor between Japan and the Philippines. The corridor connects SBI Remit, a Japanese money transfer provider, with Coins.ph, a Filipino mobile payment service and SBI VC Trade. The payment line converts the traditional currency into XRP and then back into the traditional currency on the recipient side. SBI Remit sees the collaboration as an opportunity to “release locked-up capital” and plans to network with other partners on RippleNet in order to build up additional payment and financial products from the registered base.
The cross-border product expansion, dealer loans and additional product diversification are based on open banking or the exchange of data between banks and third parties such as payment companies. When combined with blockchain technology, open banking can enable risk, authentication, digital invoicing, supply chain management and faster processing for cross-border payments.
“Open banking complements and shares our vision,” said Young. “The ultimate goal of UK Open Banking and EU PSD2 rules is to give people more choice, greater value and greater access to financial services.”
Young joined Ripple about a month ago after having worked at Mastercard for five years, where she worked on bank-fintech partnerships and most recently headed the global fintech & digital segment for the card brand’s data and services unit. Her tasks at Mastercard included supporting banks in setting up real-time payment channels, introducing open banking and using artificial intelligence. She plans to use this experience to lead similar product developments and collaboration with banks at Ripple.
“In an industry that still largely uses infrastructure that was built before the Internet to process cross-border payments, that traditional model no longer works for the modern world,” said Young.
Blockchain can help companies catch up. For example, a payment service provider can initiate a payment from a consumer’s bank account in a country like the UK through a consumer-authorized application programming interface and then use RippleNet to send the money to the Philippines in seconds, Young said.
The next step, according to Young, is to leverage Europe’s PSD2 regulations, new standards in other countries, and general trends in banking / fintech data sharing to expand beyond payments. Open banking can help overcome outdated messaging standards and formats, which can vary significantly from country to country and require extensive manual intervention, which in turn creates delays and inaccuracies, Young said. Transactions in multiple currencies require foreign exchange transactions and expose the parties to exchange rate and settlement risks, she said.
The aim is to “enable a world in which values flow as easily as information on the Internet,” said Young. So far, the focus has been on addressing the inefficiency of cross-border money transfers. Because blockchains are decentralized, banks and other financial institutions can communicate payment information bidirectionally in real time and process the payment instantly and seamlessly. This can overcome a fragmented payment system, even within the EU where there is a culture of cross-border trade.
“In Europe in particular, cross-border payments remain a challenge and a patchy, painful experience despite the introduction of the euro as the common currency in 1999 and many EU initiatives in many parts of the region,” said Young. This is partly due to the coexistence of eight national currencies alongside the eEuro and the slow introduction of the SEPA instant transfer process.
Ripple offers an alternative to the Swift rail as Swift is working to improve its own skills to enable faster cross-border payments. In June, the Bank of New York Mellon, Citigroup and other banks agreed to test Swift’s new transaction management platform, which should go live in 2022. Swift recently launched Swift Go to support lower rates for cross-border payments under $ 10,000. And Citigroup recently launched a platform that leverages Swift’s global payment innovation service to improve tracking of international transactions.
Ripple is taking these steps as market demand increases for payment technology that encourages partnerships between banks and third parties. While Ripple focuses on peer-to-peer transfers and cross-border payments for online merchants, the applications of fintech / bank partnerships and open banking can support much broader financial services.
“Ripple has made a leap into embedded finance. Some call it banking as a service or contextual banking,” said Enrico Camerinelli, senior analyst at Aite-Novarica. “People are following Uber, where paying is connected to everything. If you want to run a shop that sells bicycles, you have to take care of the store, the supply chain, the bike sales and maintenance things led to collecting and making payments. “
The value of embedded payments is often tied to large tech companies that offer banking and related content through a proof of payment, much like Apple Card, which uses a partnership with Goldman Sachs to issue cards, accept payments, and through the bank. But it’s much broader than that, as a payment or transaction or proof of eligibility can be linked to almost any part of the business, Camerinelli said.
The demand for technologies that integrate payment information or payment processing into myriad services is driving investment in the industry and allowing more companies to expand their services. Marqeta’s IPO was based in part on the belief that payments will need to be embedded in almost all software in the future.
“Someone who opens a physical store also has to find out how many other digital channels they want to be on. And an embedded fintech provider will do that for you, ”said Camerinelli.