Ripple announced today that its xRapid money transmitting service, which uses the XRP distributed ledger to transfer fiat currency around the world, moved from testing into commercial operation.
The service launched with a handful of transmitters, who will be able to offer cheaper and faster global transfers than were possible with legacy systems. Three local exchange partners will connect global XRP flows to national banking systems.
The moment is a genuine landmark. The xRapid service is part of the broader RippleNet ecosystem that also includes the xCurrent data system. It is the nascent fulfillment of a promise that has underpinned much of the momentum in blockchain over the past decade: that cryptocurrency can provide the invisible backbone for an upgraded global financial system. That transition has implications not just for Ripple or for international finance, but for the entire global economy, and every actor in it.
Ripple’s xRapid launch customers demonstrate the potentially broad impact of a blockchain-based transfer service.
MercuryFX is a London-based global payments provider with a decade-plus track record, primarily focused on large transfers for global corporations. At the other end of the spectrum are Cuallix and the Catalyst Corporate Federal Credit Union, xRapid customers that both serve the U.S.-Mexico remittance trade, including migrant farmworkers sending money home.
In both use cases, savings in time and fees promise to be large. MercuryFX has already used xRapid in commercial transfers to Mexico, and company cofounder Alastair Constance says that “where it would take two days and be relatively expensive to get a payment to Mexico [using the existing SWIFT system], we’ve found that it is almost free, and takes two minutes instead of two days, using xRapid.” (MercuryFX, Constance disclosed, invested in XRP before becoming a Ripple customer).
Faster, cheaper service is great for MercuryFX’s competitive standing, and for its corporate customers. But the impacts could be even more profound for underbanked global workers. According to Ripple SVP of product development Asheesh Birla, the current international wire system can require fees of $20 to $30 on a simple $300 wire transfer. “It takes days…and this is capital that people back home in Mexico need.”
The source of xRapid’s advantage will seem shockingly simple for anyone who already understands cryptocurrency. To send money from the U.S. to Mexico, xRapid simply buys XRP for dollars on the U.S. cryptocurrency exchange Bittrex, moves them to the Mexican exchange Bitso, and sells them for pesos, which are finally sent along local payment rails to a Mexican bank. According to Birla, it takes just seconds to swap dollars in the U.S. to pesos in Mexico via XRP.
That’s a stark contrast to the almost comically primitive SWIFT system currently used for international transfers. “Believe it or not,” says Birla, “In 2018, most money gets moved [internationally] by creating little files and dropping them in an FTP server that gets picked up once a night and batched.” Hence the multi-day waits for a fully confirmed international wire transfer.
XRapid’s near-instant conversion of funds into and out of XRP, meanwhile, should largely eliminate exposure to any volatility in XRP’s own value. That will allow xRapid to give users simple, predictable foreign exchange rates. It also would seem to reduce exposure to exchanges themselves, which a series of hacks and scams have suggested are a weak link in the crypto ecosystem—especially in developing markets with fewer global connections, where Ripple says its products have the most transformative potential.
From a customer perspective, xRapid doesn’t involve any crypto-specific know-how. “The magic,” says Birla, “is this digital asset moving instantly between these different crypto exchanges, from the one in the United States to the one in Mexico. But our product does all the magic underneath.”
Constance sees that magic from the customer perspective, saying the system “is easy to use, and it’s getting easier. In the future [xRapid] will sit behind the payment system, but you’ll just click two buttons and realize your money’s there in two minutes.”
xRapid is not yet a comprehensive global transfer network, though—functionality in any given country depends on partnerships with local exchanges. Bitstamp services MercuryFX’s needs in the U.K., just as Bitso handles the peso end of the trade in Mexico. Constance expects MercuryFX to offer commercial transfers to the Philippines via xRapid by this fall, made through Philippine crypto exchange Coins.ph.
According to Birla, the process of adding new transmitters and exchanges to the Ripple ecosystem is careful and hands-on for now, largely so his product team can continue to improve the customer experience. But he hopes the onboarding process will become turnkey eventually, tentatively by late 2020.
The Global Liquidation
Great, you might be thinking—companies and migrants can send money more cheaply. But why should I care?
You, and everyone else in the global economy, should care because the current international payments system is a throttle on the global economy—and not a small one. To fully understand why, and to envision the prosperity Ripple has the potential to unlock, we have to look at a little-understood element of global finance called the nostro account. Nostro accounts are how global corporations and commercial banks work around the aching slowness of the SWIFT system, and the fact that they exist at all, given the potential of modern communication technology, is quite simply crazy.
As an example, let’s posit that Uber has to transfer money from its U.S. investment accounts to Mexico to pay drivers there. Instead of sending a small transfer across the border every time someone takes a ten-minute ride through downtown Mexico City, Uber actually has a bank account with a Mexican bank. Uber intermittently fills the account in lump sums, then uses that money to make payments in Mexico, saving on international transfer fees and delays.
That’s a nostro account, from the Latin for “ours.” It sounds vaguely sensible, until you remember that Uber, like many companies, operates in dozens of countries, and therefore keeps nostro accounts scattered across the world like locally-denominated stash houses. Those stashes lock up a shockingly large pot of capital: According to a McKinsey report cited by Ripple, corporate transactional accounts held $27 trillion at the end of 2015.
For perspective, that’s significantly more than the $19 trillion GDP of the United States, kept in reserve for use in isolated monetary regions. Furthermore, nostro accounts expose corporations to sometimes risky foreign currencies, and require large, specialized treasury-management teams to try to predict cash demand in various regions and countries. And as the cherry on top, direct fees on international transfers by individuals and businesses add up to more than $250 billion per year, according to McKinsey.
A system that simply let you reliably send money where you wanted it to go, then, would free up a major slice of global capital to truly improve human life. That’s the system RippleNet wants to become, and today, it’s taking the first steps.