As cross-border market heats up, Ripple builds a bigger rail

Ripple's distributed ledger platform has fed an appetite for cheaper and more efficient cross-border payments, but it may not measure up to the needs of a larger market.

Ripple wants to scale its payment system to something resembling a large card network such as Visa or American Express to accommodate a greater number of participants with more frequent and varied transactions.

Ripple's traditional system isn't designed to handle the thousands of smaller sales processed on behalf of e-commerce sellers working on behalf of small businesses. As a result, Ripple has partnered with banks to enable near real-time processing for international remittance and small business payments.

"Traditional money services providers are seeing these small businesses grow quickly and are saying 'why can't I do that,'" said Miguel Vias, head of XRP markets for Ripple. "As the world evolves we will get more transactions that are much smaller."

The company's next step is to add features designed to improve its Ripple Consensus Ledger, or the distributed ledger that settles global transactions and supports Ripple's XRP currency. It's also bolstering the Interledger Protocol that Ripple uses to communicate between distributed ledgers.

"Speed has been an issue with blockchain and bitcoin since its inception," said Thad Peterson, a senior analyst with Aite Group. "While security is incredibly strong with blockchain, the process of moving transactions back and forth has been cumbersome and slow."

Moving to throughput rates that are similar to the networks is a "major" breakthrough in blockchain delivery, Peterson said. "If blockchain is to be a viable alternative payment channel, throughput needs to be at network speeds, or it won't be adopted."

One of Ripple's new features, called Escrow, enables funds to be held for a certain amount of time or until certain conditions are met, such as a specific date or a completed task. Escrow manages these conditions without using a bank vault, enabling Ripple to apply its model of "removing middle parties" from cross-border transactions for more complicated payment terms.

"It allows for a 'locking' of funds," Vias said. "If I send a payment with delivery date, that value is locked for the term. Nobody can touch it. That's a [new flexibility] for distributed ledgers."

The second feature, Payment Channel, is a more direct volume play. Ripple has built a distinct channel for XRP, which allows "throughput" for thousands of transactions per second, or a throughput volume similar to a major card network.

To address the financial services portion of the cross-border payments market, Ripple recently linked XRP to virtual currency processor BitGo, which processes more than $1 billion in digital currency payments tech month, to boost security, treasury management and other support.

The company is also bolstering its leadership, hiring Marjan Delatinne as its European sales director. Delatinne was formerly in charge of customer engagement for Swift's global payments innovation initiative, which positions her to help Ripple's efforts to add bank clients.