In a new post, the World Bank tackles the issue of remittances by praising distributed ledgers technology (DLT):
“Remittances are critical economic resources in emerging economies…they are more expensive precisely in the corridors where they are needed most. Cross-border payment innovations can help reduce operational costs for remittance service providers”
The average global remittance cost is around 7%. The post calls traditional B2B remittances “slow and opaque” where moving funds take a long time through intermediary correspondent banks, leading to higher fees and slower payment settlement.
“B2B cross-border payments, traditionally characterized by fragmentation and opacity, are a potential use case for the successful implementation of DLT… Using DLT solutions could also bring down compliance costs and improve the transparency and traceability of transfers. Further, DLT solutions could potentially by-pass the de-risking issue altogether, by enabling remittance service providers to operate without the need for a correspondent banking relationship.”
World Bank praises Ripple’s solution xRapid
The report praises Ripple’s xRapid as a solution “actively tested” in the market:
“In 2018, Ripple, a FinTech company, piloted xRapid, a DLT-based cross-border payments solution, along the very competitive U.S.-Mexico corridor. Financial institutions involved in the pilot saved 40%-70% in foreign exchange costs, and the average payment time was just over two minutes. The transfer of funds on xRapid took two to three seconds, with most of the processing time explained by domestic payment rails and intermediary digital asset exchanges.”
Transferring funds in three seconds is possible using as a bridge asset XRP used in Ripple’s xRapid. The company is actively bringing XRP into the real world, leaving slowly the still speculative crypto market where most assets have not shown real use cases yet.
Back in January 2018, Ripple has announced a partnership with MoneyGram, one of the world’s largest money transfer companies, to pilot XRP in their payment flows.
Finally, the World Bank’s report also highlights industry incumbents being pushed to innovate, in order to reduce costs and fees, bringing as example SWIFT, Visa and JP Morgan’s DLT proof-of-concept. Will be DLT the future of cross border payments? The World Bank didn’t provide a definite answer, but it makes clear that there is a need for innovation.
“Whether DLT will be an effective solution to the challenges the remittances industry faces, and when the technology will reach a sufficient scale to effectively disrupt this space, remain to be answered. In any case, there is ample opportunity – and of course need, – for innovation in the cross-border payment industry.”