Ripple vs. SWIFT: The New Game of the American Political Elites
TechnologyBit News Today2 min read
Methods for transferring funds across international borders have seen little substantial change since the 1970s. Ripple, a firm based in San Francisco, aims to make the transfer of value as rapid and inexpensive as sharing data. Cross-border payments total $180 trillion annually around the world, carrying an aggregate expense exceeding $1.7 trillion each year.
More than 10,000 banks across the globe use the SWIFT system, a financial messaging tool that lets them exchange information about transactions in a standardized way. But SWIFT does not actually move money. Instead, it merely instructs one institution to debit an account while directing another to credit one.
Long processing times, limited transparency, and transfer errors are notable drawbacks of the SWIFT system. Settling transactions can require three to five days, and senders generally have minimal insight into the entire transfer. Because SWIFT operates as a unidirectional messaging platform, senders only find out their total fees after the transaction finishes. The error rate of international transfers through SWIFT is around 5%.
Ripple Challenges SWIFT with Blockchain Solutions
To address these issues, Ripple applies blockchain technology through its RippleNet network to streamline cross-border transfers. RippleNet links banking and financial institutions globally into a single system capable of instant communication.
Ripple developed xCurrent to enable real-time tracking and settlement of international payments. Unlike the one-way messaging system of SWIFT, xCurrent has bi-directional messaging capabilities. This allows institutions to communicate information about transfers in real-time. This setup enables the sender to receive details regarding exchange rates and service fees in real time.
The approach also cuts costs by preventing funds from lingering in transit, while Ripple's XRP token can serve as a bridge currency to facilitate direct transfers between parties.
On the other hand, SWIFT retaliated with its own innovation effort. Rolled out in February 2017, SWIFT's gpi initiative aimed to provide quicker, more traceable cross-border payments with same-day access to funds, complete payment tracking, and unchanged remittance details.
However, SWIFT has been lukewarm towards blockchain, recognizing it as not being ready for cross-border payments. In contrast, Ripple’s enterprise blockchain network has attracted over 100 financial institutions across the world. Additionally, Banco Santander announced One Pay FX, an international transfer service operating on Ripple's xCurrent distributed ledger system.
Numerous financial institutions are also preparing to integrate XRP via xRapid into their upcoming payment flows. This development represents a direct challenge to established incumbents such as SWIFT, who are launching initiatives to stay ahead in the game.
