Santander Group, the Spanish banking giant, has invested several million dollars in Ripple, one of the most prominent startups in the hotly discussed field of distributed-ledger technology.
The San Francisco firm, which has shortened its name from Ripple Labs, also plans to introduce a new payments technology, known as Interledger, which it claims will offer banks the same speed and cost benefits as the three-year-old Ripple network but with improved privacy and scalability. Interledger will also allow banks to pay transaction fees in local currencies rather than having to use XRP, the native digital currency of the Ripple network. Ripple is also unveiling a pair of enterprise software solutions for cross-currency settlement and foreign exchange market-making.
Santander's fintech mavens recently highlighted distributed ledger technology (of which Ripple's offerings are one example) as one that banks should consider to modernize their operations. A couple of weeks later, Santander's U.S. consumer unit named as its new chairman former JPMorgan Chase executive Blythe Masters, now CEO of the blockchain technology startup Digital Asset Holdings. The Spanish bank is investing in Ripple as U.S. payments institutions strive to modernize the existing payments architecture to build a faster system.
Neither party would say how much Santander invested in Ripple. The startup said the infusion will bring its series A venture capital funding round to $32 million. Ripple said in May that it had raised a cumulative $28 million, and since no new investors other than Santander have been announced since then, it is presumed that the bank put in around $4 million.
Earlier this year Ripple was hit with an enforcement action over its failure as a virtual currency exchanger to register as a money-services business and report suspicious transactions in XRP. Ripple agreed as part of the settlement to improve its anti-money-laundering compliance and limit XRP transactions to registered money-services businesses.
Ripple's technology could help modernize the banking infrastructure, Mariano Belinky, managing partner of Santander InnoVentures, the bank's venture capital arm, said in a press release Tuesday.
"Ripple possesses the talent, technology, and momentum to address many of these scenarios, and [we] are actively exploring where and how best to apply Ripple technology inside the bank," he said.
According to Ripple, the technology makes it possible for banks — currently hampered by $1.6 trillion annually in transaction-related fees — to skirt around correspondent banks and pay each other directly, eliminating processing fees, lowering operational costs and compressing the cost of prefunding accounts.
"Outmoded payment infrastructure forces banks and their corporate customers to prefund foreign accounts for international payments, but then provides few assurances that cross-border transactions will actually settle," Ripple CEO and co-founder Chris Larsen said in the press release.
Ripple started as an open-source, peer-to-peer software project similar to Bitcoin, but in recent years Larsen's company has been pitching its technology to financial institutions to use behind the scenes. The firm signed up a few banks to use the Ripple network, but the requirement to use XRP as a sort of postage stamp for sending money made the technology a difficult sell. (To protect the Ripple network from spam attacks, users are required to burn a tiny amount of XRP any time they transfer money.)
The new protocol, Interledger, is also open-source, and is designed to "connect the world's many ledgers," Ripple says. It can work in combination with the Ripple network, which continues to function, or without it, Larsen said in an interview. Interledger does not require an anti-spam measure like XRP because it is not a distributed database that must be stored on many servers like Ripple's consensus ledger or Bitcoin's blockchain, he said.
Among the new enterprise products, Ripple's cross-currency settlement solution lets banks share payment and fee information with each other before executing transactions and confirm when they are settled. They can apply their own compliance systems, rules and messaging standards.
Ripple has several bank clients that have completed pilot programs and are now designing commercial implementations, according to the news release.
The company indicated it will offer enterprise solutions with transaction data support and allow companies to process an unlimited number of transactions at once. It did not specify when it would introduce these offerings.