Swift vs. Ripple
Banks and other payment processing businesses like Visa and Mastercard, are feeling the pressure to provide fast, secure, and inexpensive ways to move money around the world.
B2B (Business to Business) cross-border money transfers have become a large part of these financial businesses’ revenue, and many have become focused on this part of the services they offer.
Addressing the needs these financial institutions have has created a rivalry between SWIFT, a long-established presence in the global market, and Ripple, a relative newcomer to the stage.
Who Are They?
SWIFT is an acronym for Society for Worldwide Interbank Financial Telecommunication. They are a long-established (about 47 years) and well-trusted business.
In fact, they have standardized the process used by global banks to handle cross-border money transfers.
Ripple is a for-profit company using decentralized ledger technology (DLT) to create a network for financial institutions to use for processing B2B cross-border money transfers faster and cheaper.
They’ve even created their own cryptocurrency, XRP, to improve this service.
Both companies have developed innovative plans and services to meet the needs of the global financial market.
How Do They Work?
- Uses a network of correspondent banks to move money globally.
- Uses a messaging service to enable correspondent banks to send payment instructions and receive confirmation information. This allows them to make and accept cross-border payments on behalf of their clients.
- The network was becoming inefficient due to its shrinking as faster, easier, and cheaper methods became available to financial institutions worldwide.
- The process is expensive not only because of fees but because banks have to have accounts open in all correspondent banks, and these accounts have to be funded on a regular basis.
- Focuses solely on providing payment processing and cross-border wire transfer services to its network.
- Uses blockchain-based, bank-specific applications in its network called Ripple Net.
- XRapid – application focusing on cross-border money transfers.
- XCurrent -application using end-to-end tracking to settle transactions.
- XVia – standard payment interface used by the network.
- XRP tokens bought and exchanged by the network to eliminate the need to hold money in accounts.
- Supports fiat currencies like the dollar, the euro, the pound, and the yen.
- Focuses mainly on offering real-time payment settlement and currency exchange services to financial institutions and payment processors.
Now that we have established who the two main rivals are in the global financial market, we’ll now discuss how they stack up together. The three main areas demanded by customers the world over are speed, cost efficiency, and security.
This is the main concern of everyone moving money or receiving it – how long is it going to take. Nobody wants to wait long for these transactions to go through.
In the past, it took days for correspondent banks in the network to process transactions from start to finish. Now, 50% of all transactions are cleared in 30 minutes and nearly 100% in 24 hours due to:
- Use of Global Payment Innovations (GPI) to enable instant settlement of transactions
- Use of a new service level agreement which includes same-day processing of payments
- Use of a pre-validation service which is aimed at reducing the number of transactions delayed due to incorrect/missing information. This is done by allowing the sending bank to verify information with the receiving bank and fixing the errors before processing the transaction.
Due to its use of blockchain technology, transactions are completed in roughly 4 seconds.
How much is what you’re offering going to cost. In order to compete for, and keep, clients, financial institutions need to keep their costs low – for themselves and their clients. This is the second major consideration for comparing the two rivals.
Traditional banking methods were costly, but they have reduced costs overall through:
- Reducing the costs of adopting their GPI for financial institutions already using the framework of their network
- Pressuring banks in their networks to reduce the costs passed on to their clients
- Use of the service level agreement to provide upfront transparency of fees
The use of their XRP tokens reduces the costs of converting currencies from one country to another. The cost of the software used to join the network and use the platform applications is the biggest outlay for financial institutions.
While one of the three main demands of customers, it’s not as major a concern for one of our rivals as it is for the other.
- Long established and well trusted by financial institutions worldwide
- Implementation of a tracker to allow banks to monitor the status of payments as it moves from sending bank to receiving bank in the network.
- Implementation of another tracker for all transactions not just payments as well as for those not using the GPI service.
- Set up of a multi-bank standard to directly initiate and track the progress of B2B cross-border payments themselves.
- Is compliant with all regulations in all jurisdictions as a legacy system
- Is secured by a network of validating services using an internal ledger guaranteeing transactions based on consensus.
- Coins are all preformed and Ripple controls the supply through allocation and creation of new coins only when needed.
- Is still needing to satisfy regulators in all jurisdictions globally.
As you can see, there are some benefits to using one over the other, but there are some drawbacks as well. These companies are also aware of this, and they are both working hard to overcome the drawbacks.
Ripple is actively seeking the trust of the global banking community by becoming as compliant as they can with traditional banking regulations. To date, they have built up quite a client base and trust.
Swift is also active in overcoming the drawbacks of their legacy system. Most recently, they have begun allowing financial institutions running on DLT to use their GPI platform as a way of creating a hybrid system. Both rivals have a long way to go to be declared the top network to use.