How Ripple’s xRapid could improve global payments

Ripple's xRapid is making more of a splash than a ripple when it comes to global payments, and it could reduce transaction times and costs dramatically

As Ripple teams up with payment and foreign exchange companies worldwide to make international money transfers cheaper and faster, xRapid has seen an increased number of adopters as well.

Launched in October 2018, xRapid is a product that uses XRP (the Ripple cryptocurrency) to enable instant liquidity for cross-border transactions.

xRapid could improve global payments not only by making them faster and cheaper, but also by increasing transaction security.

xRapid also benefits from Ripple’s international reputation. RippleNet has over 200 customers, half of which are banks and financial institutions from Asia and the Middle East. That’s not really surprising when you consider that remittances are a crucial revenue source for families in these regions.

Potential global savings of $16 billion

Using blockchain technology for transferring money across international borders comes at a time when people are still sceptical about digital assets and their role in the global economy. However, fees in the remittance market are too high and, despite being expensive, transactions are also slow.

According to Ripple, remittances to low-and-middle-income countries make up $450 billion a year (from a total value of $600 billion).

For transferring their money internationally, people pay almost $30 billion in fees! The global average cost for sending remittances was 7.32% in Q2 2017.

Remittance costs vary substantially by pairs of countries, the financial institutions involved, and the instrument used. Sending money from the UK to any European country costs less than sending the same amount to Africa or Asia, for example.

Banks often have the most expensive services, while providers that use mobile money often give better rates. Post offices seem to be the cheapest alternative in the market right now, but even here we’re talking about fees higher than 5%.

The issue is so pressing that high remittance costs have captured the attention of the G8 since 2009. The leaders of the most powerful economies decided that remittance fees should be lower than 5% – which has still not happened after 10 years!

Ripple claims that cryptocurrencies and blockchain technology could cut down costs by more than half. Products like xRapid could lead to savings of $16 billion a year.

As international money transfers become cheaper, banks and other remittance service providers can reduce their prices as well. This will have a direct impact on the final users, who are often low-income families in emerging economies.

International transactions become “a matter of minutes”

It’s not just the cost of money transfers that will go down with the implementation of blockchain technology in this niche. Transactions will also become faster, going from 3-5 days to a couple of minutes.

Traditional wire transfers are processed in business days only. Moreover, you need to ask for the transfer before a certain hour for your request to be processed on the same day.

Sometimes, the money doesn’t even go from your bank to the receiver’s bank directly, as many institutions use intermediary banks along the way, making the process even longer and more expensive.  

xRapid enables financial institutions to move money more efficiently, providing a frictionless experience for both remittance service providers and final customers. The service won’t just benefit banks, but also money transfer and payment service providers, such as Moneygram and Western Union.

Last year, Ripple stated that financial institutions that implemented xRapid for the remittance corridor between the US and Mexico needed a little more than two minutes to complete an xRapid payment and registered savings of 40-70%. However, the company didn’t mention which institutions were involved in the pilot.  

The transaction only takes 2-3 seconds as XRP is a source of instant liquidity. The rest of the time up to two minutes is needed to convert XRP through digital asset exchanges and local payment processes. xRapid eliminates the middlemen and the Forex exchange fees that come with them.

xRapid may be the solution to safer cross-border money transfers

Blockchain technology could also influence the security of international money transfers, eliminating the risks of money laundering and scams. The so-called “technology of trust” could enable banks and financial organisations to increase the transparency of international money transfers processed daily.

Two weeks ago, the Euro Exim Bank announced its partnership with Ripple as it aims to implement xRapid to source liquidity for cheaper, safer, and faster cross-border trade. The bank, which has a representative office in London, owns a Class A international banking license for doing international banking business.

xRapid isn’t just a product that could change the future of global payments. It’s already in the market, disrupting traditional financial operations across countries.

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