- Ripple (XRP) itself will not make you rich by itself but it will revolutionize money transfer companies
- The traditional money transferring system takes a week to complete
- Blockchain (XRP) solves the cost, timing, and security issue
- Major companies who use or plan to use XRP are American Express (AXP), Banco Santander (SAN), and MoneyGram International (MGI)
Major companies who use or plan to use XRP are American Express (AXP), Banco Santander (SAN), and MoneyGram International (MGI)
We have seen disruptive innovations in the past. We have witnessed the fall of Blockbuster to Netflix and brick and motor companies to Amazon. Technology and innovation can destroy 100 years of “status quo” in the blink of an eye. What new technology has the potential to change the face of an industry in the near future?
Ripple (XRP) will not make you rich by itself but it will revolutionize money transfer companies
Blockchain technology is still a controversial topic among investors. We associate blockchain only with Bitcoin and can’t seem to separate the two technology from each other. To simplify, Bitcoin is like gold, Ripple (XRP) is like cash, and blockchain is an online record system. By itself, blockchain solves a problem. For example, the traditional global payment system created 50 years ago is outdated and outrageously complicated, unfit for our current expectation of fast, reliable, and accurate transactions.
Companies that utilize this technology can transfer the money instantaneously, eliminating pre-funding accounts around the world. Furthermore, few financial institutions have extended this technology to unbanked individuals and in the emerging markets. The scope of cross border payment is highlighted below by the Boston Consulting Group (BCG):
“The size of the cross-border payments volume is at $27 trillion […] Another $20 trillion in growth could be up for grabs between 2018 and 2026.”
Consumers want speed and low cost. McKinsey and Company, a global management consulting firm, also studied the current money transfer system. U.S consumers who send money internationally rank speed and cost as a concern. In fact, 45% cited cost as a reason for switching payment providers and 30% cited speed.
The traditional money transferring system takes a week to complete
A normal international transaction in a traditional system takes time. Say you are a money transfer company in New York and want to transfer money to London. How do you do it? Your customer in New York is most likely paying you with a debit card, credit card, or automated clearing house (ACH). First, you wait until the money is transferred into your account (2-3 days). Then, you will bunch all the transactions together and push them to England via Swift International Transfers (2-3 days). Finally, the bank in England can do payout and distribution (1 day). We can see that traditional money transfer is unnecessarily complicated and slow. However, prefunding solves this issue but at a financial cost.
Prefunding solves the traditional money transferring system but costs too much
Prefunding solves the speed problem in traditional money transfer. Like our last example, we must ship money out to our customers in England. But, this time, we ship the money out 1 week in advance and tell the British bank to hold onto our money. The second we have a customer who wants to send money from New York to London, I tell my partner in London to release our money. The issue is prefunding adds incremental cost and complexity to money transferring. Companies currently accept prefunding as a necessary evil of doing business.
Blockchain (XRP) solves the cost, timing, and security issue
You might think of Ripple (XRP) as an altcoin with the high volatility that has bankrupted many new crypto traders. However, I am not here to promote XRP. I am talking about the benefits of the Ripple network. In fact, XRP is one of the hardest cryptocurrencies to trade, and I do not recommend it.
The Ripple network is a digital ledger that runs on blockchain. Simply, it is an online accounting ledger that is tracked by computers around the world. The system is disruptive because it is faster, less expensive, and more transparent than the traditional money transfer system.
Using the Ripple Network, say we want to send money from New York to London again. When a customer pays us to send money to England, they use a debit card, credit card, or ACH like before. However, instead of using banks, the transaction is recorded on the Ripple Network instead. We would purchase XRP with the U.S dollar, and we would purchase the British Pound with XRP instantly– this is real-time money transfer. This is the future of payment settlement. Additionally, the system provides end-to-end viability, access across the world, and rich data attachment (transfer information).
Technological innovations build new industries on top of old ones. Thus, we must be aware of the technology that can change how we do things. We tend to defend “old” traditional infrastructures, which is not entirely wrong to do. However, our defense should be based solely on the merits of a system and not in the interest of protecting the “status quo”.