Blockchain technology is causing massive disruptions across a wide range of industries, markets, and economies.
Bitcoin, the most popular blockchain application has shown the world first-hand how the decentralized nature of blockchain could cause a paradigm shift in the global economic landscape. Beyond Bitcoin, other cryptocurrencies have sprung up to solve some of the biggest business and financial problems ailing the global economy.
Ripple is one such blockchain application – Ripple (XRP) is a real-time payment settlement system built on blockchain technology to solve the settlement problems associated with the SWIFT network that banks currently use. Ripple prides itself in connecting “banks, payment providers, digital asset exchanges and corporates via RippleNet to provide one frictionless experience to send money globally.”
Earlier in January 2018, news broke that Ripple and money transfer giant MoneyGram have entered a partnership to pilot the use of Ripple’s XRP in Moneygram’s payment flows in order to unlock on-demand liquidity. Both companies will also explore the possibility of integration of MoneyGram and Ripple’s ecosystems using xVia.
MoneyGram is one of the big name companies that facilitate the transfer of cross-border payments and remittances between business partners, friends, and family members. When you use MoneyGram’s money transfer service to make a remittance, MoneyGram won’t necessarily put your money on a airplane for onward transmission to the recipient. Rather, MoneyGram through its partner agents and banks will use pre-funded accounts or lines of credit to sort for liquidity. Moneygram and the banks now get back together to resolve and settle transactions at a later date.
The problem, however, is that the process often takes a number of hours, days, and sometimes weeks to complete. In addition, the participation of traditional financial institutions means that senders/receivers have to pay a premium in transaction fees if they want a quicker settlement of their remittance.
MoneyGram’s partnership with Ripple will help the world’s second oldest money transfer company eliminate some of the inefficiencies of the global payments industry from its processes. As MoneyGram CEO Alex Holmes explains:
Every day blockchain technology is changing the norm and encouraging innovation. Ripple is at the forefront of blockchain technology and we look forward to piloting xRapid. We’re hopeful it will increase efficiency and improve services to MoneyGram’s customers.
MoneyGram is an 80-year old traditional financial institution – the firm would be excused for being ancient, conservative, and averse to change. However, it is quite surprising that MoneyGram is one of the first traditional financial institutions to embrace the disruptive nature of blockchain technology. The remittances and payment industries are especially overdue for disruption and leading companies like Moneycorp should be on the forefront of change.
For instance, Moneycorp, a UK-based firm that offers forex and international payment services has a proven track record of being a better processor of remittances than banks. The fact that MoneyCorp already has a distinguishing factor as a disruptor in its field suggests that it is at a vantage position to adopt blockchain for payments.
However, one of the reasons traditional financial institutions have been unenthusiastic about adopting blockchain technology is that blockchain is still in infancy. The relative infancy of blockchain suggests that the technology still has to evolve through many iterations before it can become a mainstay for traditional financial houses. For instance, Bitcoin is impractical as a means of exchange in microtransactions such as a cup of coffee, buying a popsicle on corner store, or splitting Uber fare with friends. It costs about $30 to process a Bitcoin transaction in “decent” time.
Secondly, the volatile nature of cryptocurrencies suggests that money transfer firms would need to manage huge predictive data and FX hedging instruments in order to survive FX headwinds/tailwinds from a volatile cryptocurrency.
Nonetheless, some cryptocurrencies such a Ripple and Litecoin have fixed some of the fundamental problems plaguing Bitcoin and they might provide traditional financial institutions a faster route for getting the best out of blockchain technology.
Do you think that other traditional financial institutions will follow in the footsteps of MoneyGram and adopt crypto and blockchain to efficiently facilitate money transfers? Let us know in the comments below.
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