Central banks' demands for real-time payments fuel growth for Ripple

Governments are directly advancing real-time digital payments — a welcome move for Ripple, which is applying its relationship with MoneyGram and a growing base of eager partners to expand its network.

“In emerging markets, a lot of central banks are upgrading local payment systems for real-time transfers,” said Asheesh Birla, senior vice president of product management and corporate development at Ripple.

Ripple recently entered a partnership with Azimo, a European digital money transfer service, to cut costs for cross-border payments to the Philippines. Azimo plans to use its connection to Ripple to expand faster cross-border payments to other markets in the next year. Ripple has used its XRP digital asset to reach more than 300 clients in 45 countries and 70 nations by cutting steps out of international transfers by eschewing traditional cross-border payment methods such as correspondent banks.

In the Philippines, digital payments have jumped from 1% to nearly 20% in the past year, with the Bangko Sentral ng Pilipinas playing a major role. The BSP introduced several programs to grow digital payments and real-time settlement, enticing one of the world’s most lucrative remittance markets. The growth of ride-hailing services has also helped digitize the Philippines.

The same kind of push to enable real-time payments is happening in dozens of other countries, both in developed and emerging markets. Late last year in the United Arab Emirates, the central bank introduced IPI, which allows real-time settlement.

This week, Ripple added the National Bank of Fujairah to support real-time cross-border payments. The bank is headquartered in the UAE and wishes to provide remittances in India. India’s United Payments Interface has sparked a rise in digital payments in India. But like the Philippines, there’s still huge upside as most payments are cash — providing an ideal market of fast growth and untapped potential for digital payments.

In Thailand, Ripple recently entered a partnership with Siam Commercial Bank to enable cross-border payments through QR codes. The initiative is aimed partly at travelers to Thailand who wish to use their home currency. Central banks in Hong Kong and Thailand are jointly working on a real-time payments rail for cross-border transactions. That project involves ten banks from Hong Kong and Thailand using distributed ledgers to execute payments.

“So the local rails are going real-time in these countries, and we see needs where the government is doing the job locally but the largest commercial banks didn’t have the incentive,” Birla said.

Not all of these projects directly involve Ripple, but the push toward real-time digital payments in this case can be a tide that lifts all boats. The Hong Kong Thailand project, for example, uses R3’s Corda distributed ledger. R3 and Ripple have at times been business and legal rivals, though the two have worked together on a project designed to streamline international payments on Corda.

And Mastercard’s Vocalink has worked on central bank faster payment initiatives in several nations, including the Philippines.

As Ripple has expanded in these markets, it has also added an investment in MoneyGram, which added to Ripple's network effect as MoneyGram gains the ability to settle currencies and match the timing of funding with settlements to reduce overhead. Ripple also recently raised $200 million from Route 66 Ventures and other investors, lifting its valuation over $320 million and enabling it to add staff.

“There are tons of workarounds involved because of the aging infrastructure in the cross-border system,” Birla said of how these investments can help Ripple remove steps from international payments.

Ripple has drawn direct competition. Writing for PaymentsSource, Jon Dela Cruz, a researcher for iCompreFX.com, said the influence of blockchain on international payments, that has come in part from Ripple, has given rise to competitors such as Abra, Circle, BitPesa, MOIN and Coins.ph.

BitPesa, for example has used an API to build cross-border payment markets in U.K., Europe and Africa. Circle has used acquisitions and partnerships to expand its product base to include financial and banking services in addition to cross-border payments.

Ripple contends the cross-border market is large enough for multiple firms, particularly as remittances have grown more than 10% per year, reaching record levels in 2018, according to The World Bank.

“The market for us along is pretty massive to go out and win,” Birla said.