Lau: Well, all is possible. But even the simplest thing as wiring money or transferring money across borders, this seems to be part of a legacy system, a traditional system that we all very much still exist in. Why hasn’t this evolved to date, and what initiatives are trying to answer this problem?
Gupta: So what happens is that every monopoly or system that has been around for tens of years always has a huge amount of resistance to change. The easiest parallel to this would be post offices. Post offices were around pre-Internet and used to essentially take information, if you wanted to send a letter to Navin internationally, you would send a letter at a huge amount of cost.
A lot of times she wouldn’t know whether the letter had reached me or not. And then came the Internet which totally bypassed everything that the post offices had built. The same thing is happening in the cross-border transfer world, because for the last 50 years, there has been technology out there which is not suitable for the Internet world. What we at Ripple and many other institutions are doing now is leapfrogging what used to be there earlier and changing and bringing the whole humanity into this brave new world.
Payments can be sent across borders 24/7, 365 days a year at a cost which is transparent to everybody before the money leaves your account. Then you’re 100% certain that money has indeed reached the intended beneficiary as it was supposed to. So from the existing network [where] there is a huge amount of resistance to change, monopolization, vested interests, we are leapfrogging [that] to bring people into this new world, which is more suitable for the Internet era that you and [I] live in.
Lau: Well, it really reinforces what we’re observing from our perch here at Forkast.News, which is this diversion of customer experience and even the willingness to leapfrog into new technologies. Much of this is happening here in Asia and being led in Asia, implemented in Asia as well. Tell us, what’s happening on the ground, what’s happening particularly in economies here in Asia, particularly Southeast Asia, that make it such a hotbed for adoption of this technology?
Gupta: Absolutely, Angie. So let me take an example — Siam Commercial Bank. It’s not a neo-bank, it’s not a digital bank, it’s the oldest bank in Thailand. They have a very simple app called easy pay, so if you’re a Thai customer and there are 16 million Thai customers and retail customers of Siam Commercial Bank in Thailand, using your app you could send a cross-border transfer instantly into euros, U.S. dollars, Singapore dollars or GBP.
On your app, you would enter the instructions. Say, for example, you’re sending money to somebody in the U.K. Within a few seconds, the money would move from your account here in Thailand — and this is 24/7, 365 days a year—to the beneficiary account in GBP in the U.K. As you know, Thailand is not a Western economy, but at the same time, it has been able to leapfrog a very traditional system that used to exist for the last 50 years and move into an area where it is serving its customers in a very different way.
To me, what we are seeing in countries in the Asia Pacific, and this you would see in terms of e-commerce play that has happened in Asia Pacific, may it be Alipay … a number of other institutions which are making it happen are changing the customer experience on its head.
They are going to a customer in Thailand and essentially saying, hey, you don’t have to go from no phones to landline to 2G to 3G — what we will do is we will skip the landline experience and go straight to 4G. That’s what Siam Commercial Bank has made for their customers in Thailand so they don’t have to go from a post office to a FedEx and then to the Internet. They are taken straight away to the internet of money, which is powered by Ripple.
Lau: That’s the thing — the user experience is very seamless, but what is the engine? What is Ripple trying to achieve in terms of payment systems? Explain the technology behind the ease in which these transfers can happen.
Gupta: Absolutely. So I’ll make it very easy because a lot of our users may not be technically savvy. Let’s assume Angie has a WhatsApp and Navin has a WhatsApp. Once we download WhatsApp on our phones, the first thing that happens is Angie wants to speak to me on WhatsApp. She would add my phone number; you can think of phone numbers as validation.
Exactly the same thing happens in Ripple technology, and in this case, it is two institutions. Say, for example, Siam Commercial Bank and a bank in the U.K. download the Ripple software. Once they are connected, then they can speak to each other through the same technical standards. Now, let’s assume they want to connect with each other like we would do on WhatsApp. Angie would add in the phone number, in the case of the two banks, they would add in their IP addresses.
Once they are able to add in the IP addresses, they are able to do some testing to say they are able to speak to each other. Now, when an actual transaction needs to travel from Siam Commercial Bank to a customer of the bank in the U.K. or for that matter, any bank account in the U.K., all they would do is speak through the same network like what we do on WhatsApp. For example, when you send me a WhatsApp message, what I would see is the moment the message is gone, you would see a single tick. Once I receive the message, you will see double ticks. When I’ve read it, it will turn blue, and if we are typing, then you will be able to see that I’m typing back. You can send messages, you can send photos, you can see a number of things and we’re able to communicate in real time.
The same thing happens among the two institutions as well. In this case, with Siam Commercial Bank and the bank in the U.K. where they are able to send transactions to each other in real time and they’re able to debit and credit accounts 24/7, 365 days a year. Now, the last thing that happens is like what happens in our WhatsApp messages. Let’s assume somebody wants to look at my WhatsApp screen and then see all the messages that Angie has sent to me and look at Angie’s screen to see all the messages that she sent to me, they will be exactly the same. That means the ledgers on our WhatsApp screens are the same.
In the banking parlance, it’s nothing but ledgers. In the old world, what the banks would need to do reconciliation to say: “I sent you a hundred messages, did you receive a hundred messages? Let’s reconcile every evening.” This is a huge industry with a huge amount of cost and inefficiency built in. But in the case or WhatsApp, for example, there is no need to reconcile because your screen is absolutely the same as mine, and that’s what Ripple has done.
The underlying technology removes any need for reconciliation because what we have is a Google Doc kind of ledger, which essentially means we have a single shared ledger between these two banks. So there is never a transaction in which there is a debit that has happened to a customer’s account and the Siam Commercial Bank, and a corresponding credit has not happened. Hence it removes error, it removes the need of reconciliation and the transactions can flow freely 24/7, 365 days a year. The simplest way to understand our technology is “we are WhatsApp for banks, we are able to communicate [the way] WhatsApp transfers information, but we are able to transfer value across borders.
Lau: Ripple is one of many enterprise solutions that are using blockchain and ledger technology to try to resolve this fragmented global payment system that prevents a lot of the seamlessness that we come to expect with technology.
The fact that there are others out there, how does that create inefficiencies? For example, if not every bank is on the Ripple system and other banks choose to create potentially their own systems or live on other platforms, how is the noise of competition in technology solution potentially creating its own quagmire?
Gupta: One hundred percent Angie, that’s the right question to ask. Firstly, Ripple is not a science experiment. We are not doing this to win some kind of award in an academic institution. We are solving a real world problem and building scale with institutions to make sure that people around the world are able to use our solution, and institutions are able to provide this service to their customers.
Though we are a technology platform at the core, we are building a RippleNet, which is an ecosystem of banks which essentially are able to move money around the world. We have thought of it in three parts. The first part is clearly that the technology needs to be scalable, needs to be robust, needs to deliver on the promise of blockchain.
The second thing that we are doing currently, and that’s the reason we announced that we have 300 customers around the world, is to make sure that at least there is one or multiple nodes in every single country and every every single currency that we serve. Because generally around the world, the domestic payment systems are quite good. For example, there is FAST in Singapore, that is IMPS in India, and similarly there are instant real-time payment systems that are put in place by the government, which essentially are the categories of value domestically. Now, what we do is hook these systems to the international system.
So, for example, we have a number of institutions which are sending money into India. So once the money lands into India on even one single Ripple node, that in turn connects to the domestic rails and then is able to deliver money to any citizen or any bank account in that country. So even with [numerous] institutions, we will be able to serve every single nook and corner of the world because we will then ride on the local domestic payment systems that are already in place, which are for about 52 countries already real-time and then be able to deliver the money. That’s the second part.
The third part of the question you asked is to say, “hey, you know what? There are multiple people who will be building their own blockchains. Maybe there’ll be a blockchain in shipping, there’ll be blockchain in the security settlement [industry], there’ll be blockchain in a number of other areas around the world. So we’re very clear that the world will not be on one single blockchain.” And hence from the get-go, we have pioneered something called the interledger protocol, ILP, and you can think of it as like HTTPS or the TCP IP of the world.
What it does is it creates an open standard — it’s not proprietary, it’s not owned by Ripple, it’s essentially open source so everybody can use it. Anybody who’s building a payment system today or a blockchain system today can comply with the ILP requirements or can incorporate the ILP protocol while they’re building their technology, that would mean tomorrow their blockchain will be interoperable with anything that Ripple is building.
In that case, let’s assume Angie was to decide to build her own blockchain ecosystem, she would be able to speak and transfer value to Ripple’s blockchain ecosystem because it’s ILP compliant. This is something that we’ve been working on for many, many years. We have done quite a bit of work with the Bill and Melinda Gates Foundation, where we looked at countries which have no payment system today. And as you know, in most countries, payment systems are built in different decades. So there would be real-time gross settlement, there would be an automated clearing house, then there will be a real-time, low-value clearing system, which will be 24/7.
Because these things are built in different times, today a check cannot be converted to a card payment, a card payment cannot be converted to an automated clearing house. But if these systems are being built ILP compliant, then you would have interoperability between the systems and you are able to move value from one system to another without the need of these systems being owned by one company, or them being part of one network.
Hence, one network is able to speak to another network exactly the way it happens in the internet world today, where you could have your own database and Navin has his own database and the reason we are able to speak to each other and share the information that we want to is because we have internet protocols which are common, and when we build our own systems, we make sure that we are complying with those internet [protocols]. We have thought of that in the exact same way for money.
Lau: One of the most powerful things of the system that you’re creating in conjunction with the interoperability aspect of it is that it allows people who have traditionally been the unbanked access to something as powerful as money or value or cash that allows them to invest in their own homes or their own businesses in their own villages.
That has been one of the key problems in the legacy system that it has been unable to really address. That’s the one really powerful aspect to what you’re talking about here. Can you tell me about some of the economies that have had and experienced this leapfrog effect? Which nations are we talking about? What change have you created on the ground because people now have access to money?
Gupta: Absolutely. We did quite a bit of consumer research — we are an enterprise company, but we do some consumer research along with our customers. So the first corridor in the world that we opened was between Japan and Thailand. So there are a lot of Thai workers in Japan working as nurses, as maids. Most of the time, they’re not at the top end of the pyramid, they are at the bottom of the end of the pyramid. Their families back home depend on money being sent by the workers.
Earlier, something that would take three days, two days for the money to reach them, a lot of time the money would get lost, and hence children’s tuition fees would not get paid. Or a lot of time mothers would need to walk many kilometers to get access to the cash so that they’re able to go and withdraw that particular money. A lot of these problems got sorted out when we put it on Ripple.
Now when a Thai worker in Japan is able to instantly transfer that money into a bank account or into a wallet back home belonging to the family, and the family is able to use that money instantly. There is a huge relief that there is 100% certainty that money is not lost. There is a lot of pre-validation, and when we surveyed these people — and some of those videos are of real customers speaking who have experienced our solution — when they talk about their experiences, one feels like crying.
I would say I’m in a privileged position where sometimes these things don’t hurt me personally, but at the same time, when you look at the lives of those people, a three-day delay in receiving money makes a huge difference for them versus lots of other people around the world. So when we spoke to them, it has made a dramatic difference from the experience they used to have earlier versus what they have now.
Lau: So then, how do you view competitors such as TransferWise, which is essentially doing the same thing — disrupting the conventional high priced remittances system? I mean, how does Ripple differentiate itself from a TransferWise?
Gupta: The easiest way to think about it would be that we are a neutral network. So for example, tomorrow if TransferWise wanted to join Ripple’s network, they’re more than welcome. At the same time, TransferWise can build its own network too, if they wanted to.
In our mind, the way we think about it would be that our customer will always be an enterprise, a Santander, a Siam Commercial Bank. These will leverage Ripple’s technology, platform, or Ripple On-Demand Liquidity (ODL) proposition, which I’ll talk about in a few minutes, to essentially make their own customers happier and they’re able to deliver a much better customer experience and lower their costs.
In summary, we don’t compete with TransferWise because we are not bringing the proposition to the end customer. The customer will always be a TransferWise customer or Santander customer or a MoneyGram customer. What we do is sit behind these institutions to make it faster, better, cheaper and [possible] to use their distribution effects to then deliver Ripple’s promise to these institutions.
I think that’s the big difference, and hence, actually no institution around the world needs to feel threatened by Ripple because we are not looking at a B2C model. We are only looking at a B2B model and we work with these institutions to deliver the promise. That’s the way we think about ourselves.
Lau: That’s the enterprise side. Let’s talk about the sovereign side here, because we’ve got China, we’ve got Indonesia, various other countries here in Asia starting to develop digital currencies, which could circumvent the remittances problem entirely. Regarding digital currencies that are in the works, for example, China’s PBOC digital currency, what impact would it have on Ripple and also this new technology network?
Gupta: The way I think about digital currency is that the use cases are still in a very early stage. I think there is no central bank that has really put a stall out there and has said, “hey, you know what? This is what I’m going to do, and this is how our citizens are going to benefit by the use of digital currency.”
And because digital currency will be sovereign in nature, [I speculate] its primary use case could be domestic. So if it is domestic, it will still need a bridge when it, for example, goes to Thailand, when it goes to Laos, when it goes to Cambodia. We are advocates of XRP because it’s politically suitable for cross-border payments, but primarily as a bridge. We are not saying that XRP needs to be used at a domestic level, but when that digital currency from country X needs to get converted to either digital or a fiat currency of country Y, then XRP would be the most efficient bridge to be able to do it because we’ll be able to do it real time, the processing speed is very, very high, and the costs are almost minimal.
In that bridge there will be a huge amount of efficiencies versus the inefficiencies that exist in the current system. So even in the case of two fiats today, for example, if you were to send money from Hong Kong dollars to Indian rupees, the Hong Kong dollars first get converted to U.S. dollars and U.S. dollars goes into Indian rupees. In the case of using ODL as a proposition, the Hong Kong dollars will get converted to XRP then it would get converted into — Philippine pesos is a better example — Philippine pesos and the payout would happen.
All this will happen in a few seconds, removing the need for something called pre-funding or nostro accounts that today’s institutions have to hold around the world. Our sense is that there’s about $5-10 trillion of money that is stuck in pre-funded nostra accounts all around the world, the cost of which gets passed primarily to retail customers. By using XRP as the bridge, there is no need to have pre-funded accounts because now the settlement happens in real time and XRP acts as the bridge, and it’s not being used or stored in the country of origin or destination.
It’s only being used as a bridge from Hong Kong dollars into XRP, into Philippine pesos, and to pay out essentially happens. We are not looking to replace domestic currencies, either fiat or digital, but what we are looking at is making the current system far more efficient versus the way it is today.
Lau: In our research ahead of this conversation, we noted a tweet from Thailand’s oldest bank, SCB Thailand, saying that the information about the Ripple transfer will be announced soon. Can you tell us a little bit more about that?
Gupta: There are a number of things that we’re working with Siam Commercial Bank on, but this is already in the news, in fact, at Swell, the innovation head for the bank actually gave a demo where in real time he was able to make a transfer from an account at Siam Commercial Bank into an account overseas and the whole transaction took 40 seconds. So that’s something that is out there. It’s available to 16 million customers. It’s available on the app today for use for customers at Siam Commercial Bank.
Lau: What are your plans for expansion in 2020? What can we expect to see as other banks in other geographic areas and potentially nations who are looking to leapfrog into this new age of cross-border transactions?
Gupta: First you will see some kind of early network effects starting to happen, whereby you would find that at least in certain corridors — and that’s the reason Ripple has a very strong corridor strategy — they will take off because now the new standard would be instant. The new standard would be transparent. This is the way money will get transferred between two corridors. We see early signs of network effects, but in 2020 you’ll see more signs of that.
The second thing that I would say is that as wallets are taking off in every single country around the world, what we would start seeing is there would be a wallet holder in country X and a wallet holder in country Y, and they will be able to send money to each other. A lot of them would clearly be bank wallets that would be wallets owned by e-commerce companies, or these could be wallets owned by telecommunication companies, which are allowed by regulators to either send or receive cross-border transfers. And a lot of these cross-border transfers will be low value. So you would be able to see a wallet holder, which is generally more use for financial inclusion for people who may not have access to financial services like high-income families do, will be able to send and receive transfers.
The third thing that I would say in 2020, what you would start seeing is a big drive or a big uptick in micropayments. And let me explain it in a couple of minutes so that everybody gets the meat of it. So today, let’s assume Navin wants to read the Financial Times, only have a choice to go to FT.com and become a subscriber and I have to pay $60 a month to become a subscriber.
But if I just wanted to read one article on FT and I’d say, “hey, you know what? Could I pay 10 cents for reading that article?” I’m not allowed to do it. And in my mind, the reason FT doesn’t allow that to happen — by the way, I’m just using FT as an example, I’ve not spoken with them— FT doesn’t allow that to happen because there is no payment system in the world today that can collect 10 cents from Navin and deposit it in their account.
Ideally what they would want to do is get hundreds and millions of users, all they want to read is that one particular article, because that is of interest to them. And if at almost negligible cost, FT could collect that 10 cents from these hundreds of millions of users, then this is a great revenue stream for them, which today they are not able to monetize. Also, readers are not able to get access to the great content that FT produces. So to my mind, a user is missing out, and also FT is missing out in terms of monetization because there is no micropayment system in the world which can do it.
But digital assets like XRP can bridge this gap whereby they can collect these 10 cents very efficiently from Navin and pay it into FT’s account and they can do it 24/7, 365 days a year across every single geography around the world at almost negligible cost. So you would start seeing scaled examples or use cases of things like these where either in media or in gaming, micropayments will start to take off. You would see a lot of entrepreneurs and innovative companies building applications on top of it using this underlying micropayment infrastructure.
Before this, if a large corporation like FT can’t do it, a lot of other entrepreneurs would have great ideas which are monetizable or put an app on the play store, but because of no micropayment payment infrastructure existing, they were not able to get it done, but now they will be able to. In 2020, you will start seeing some signs of that.
Lau: I mean, there’s no doubt it is changing the business logic across industries and the magnitude of how technology is changing, not only the cross-border payments market is huge, but the implications of even just transfer of value period is enormous.
Navin, thank you so much for giving us a glimpse into the future that has already arrived. Thanks for explaining it to us, and thank you everyone for joining us on this latest episode of Word on the Block. I’m Editor-in-Chief Angie Lau, Forkast.News. Thanks so much for joining us, until the next time.