Ripple followed up its recent announcement of opening an office in India, with an event organized for financial institutions and regional partners. As a Ripple partner, a team from FSS attended the Ripple Deep Dive in Mumbai. Our key impressions and learnings from the event:
Ripple has Clearly Arrived
Ripple has arrived in India in more ways than one. Earlier this year, at a dinner event organized by the company, regulatory aspects governing the technology primarily dominated the conversation. In 6 months, the tone and the tenor of the conversation has clearly shifted. In a room filled with Ripple Partners and Senior Bank Executives, discussions were primarily focussed on commercialization of the technology and the potential return on investment.
Complexity of Cross-Border Payments
In a world where digital transformation means most services are available (almost) instantly, banks are finally coming around to the idea that global payments are no exception.
Current cross-border payments are complex as national payments systems, as a rule, do not support direct participation by banks in other countries. Every cross-border transaction consequently is handled through a network of international correspondent banking relationships. Whilst the transaction messaging may occur in real-time, based on the nature of contractual agreements between banks, the settlement takes place between banks holding Nostro accounts via a complex web of intermediary relationships. These arrangements have high built-in risk of errors and settlement failure.
For instance, Bank A in the origin country may not have a direct bilateral connection with Bank B in the destination country and may route transactions via another partner Bank C to Bank B. The primary risk in clearing and settlement is that payments will not be settled as expected, resulting in failures for clients conducting business transactions or remittances not reaching a family member at a critical time.
Ripple connects banks, payment providers, and corporates via RippleNet to provide a secure, frictionless experience to send money globally. Compared to traditional rails, Ripple offers the ability to clear and settle transactions in real-time. All members of RippleNet are connected through Ripple’s standardized technology, xCurrent. A global real-time gross settlement (RTGS) system, XCurrent, enables banks to process, clear and settle transactions with increased speed, transparency and efficiency across RippleNet’ s global footprint of banks and payment providers. A settlement process that minimizes participant risk and works 24×7 opens the door for new types of innovations.
A Broad Spectrum of Use Cases
As a global partner for Ripple, FSS showcased real-life applications in the cross-border retail and corporate payments space.
Mobilizing International Transfers
Inward and outward remittances are a key product offering for banks. According to the World Bank, India is the largest recipient of corporate and retail remittances worldwide, totalling close to US$71 billion annually. Outward overseas remittances equal US$4.6 billion led by outflows for studies abroad and maintenance of close relatives.
Increasingly retail banking customers are demanding the ability to send international low-value payments on demand and in real time — not only across banking networks but also emerging financial networks (e.g., mobile wallets). Banks need to evolve and offer new service options to customers.
FSS demonstrated Mobile Pay, its mobile banking application, enabling banks to offer instant, on-the-go transfers over the Ripple Network. Banks using the Ripple network would benefit from consolidation of Nostro accounts and significantly lower settlement risks associated with cross-border international transactions.
The demonstration set-up was hosted on FSS Net, FSS private cloud, hosting solutions for 40+ financial institutions and processors in South Asia.
Other Use Cases
Several other of use cases were discussed. These include:
Globalization is driving corporations to transact more frequently across borders. With a Make in India thrust and the economy clocking 7% GDP growth, business-to-business payments remain a significant growth opportunity. Corporate payments can be categorised into:
- B2B Payments: E.g., Supplier payments and pay-outs for outsourced services
- eCommerce transactions: According to industry reports, an approximate 15% of eCommerce transactions are made by overseas buyers
- Payroll, and benefits payments to current and former employees living overseas are a relatively small but constant component of corporate payroll
Using the Ripple network, banks would be able to offer corporate customers instant processing speeds, end-to-end visibility into payment details, fees and immediate settlement.
A large expatriate population presents a big opportunity for banks to offer instant cross-border bill pay services — such as utility bills as well as property taxes and insurance — to build rewarding financial relationship with end-customers and billers.
Overseas workers could directly load or recharge prepaid cards of dependents in the home country.
The Regulatory Fine Print
Digitisation and compliance with cross-border payments regulation poses certain challenges. For instance, digitisation of international business-to-business and business-to-person payments would require a review of mandated paper-driven forms by the regulator. Financial institutions would need to understand these nuances and implementation would entail modification of current workflows without introducing friction in the remittance process.
Implementation Remains Key
Implementing RippleNet for financial institutions would entail interfacing with multiple back- end payment systems — Core Banking, Sanctions Filtering, Charging and Billing and Liquidity modules. Considering the lack of standardization across IT environments of financial institutions, an experienced partner, like FSS, could help banks implement Distributed Ledger Technology for cross-border payments with minimal process disruption and integration efforts.
The Road Ahead
With various use cases on show, as banks begin to evaluate the commercial viability of making these services available, it would be no surprise if the next Ripple event focuses on key learnings from early deployments by financial institutions in India.
FSS works across the payment spectrum. In addition to the above-mentioned use cases, FSS can help banks launch Mobile Wallets, Aadhaar and UPI-based payments over the Ripple network.
- World Bank Migration and Remittance Factbook 2016