The race for the cross-border payment market


Competition in the area of ​​facilitating cross-border payments has just become closer. Until recently, the main challenger of fintech for the international payment system SWIFT was Ripple Labs and its various products designed for the institutional banking sector. The first week of September saw the breaking of news, as IBM announced the promotion of its DLT-based payment system, Blockchain World Wire (BWW), from the beta version to a ready-to-use product.

Operation on the Stellar blockchain, the new financial railway will provide a "near real-time" cross-border payment and settlement facility for payments, while reducing transaction costs by removing third-party intermediaries from the process. Pervasiveness of IBM-powered solutions in global finance – the company claims to handle about 60% of the world's transactional systems – provides BWW with a heavy launch platform, pushing it immediately to the highest level in the industry that is expected to grow $ size 2 trillion by 2020.

IBM and Stellar were identified in the joint development of cross-border financial solutions in October 2017 when they presented a plan to build a transaction infrastructure for the South Pacific region along with KlickEx, a New Zealand payment network company. The news of another high-profile implementation of the Stellar blockchain by IBM came in May, when Big Blue worked with Veridium Labs to help companies monitor their carbon emissions on a distributed ledger. Finally, in July, IBM announced the launch of Stronghold USD, a stable currency with the US dollar managed on the Stellar network, in a partnership with the financial service provider Stronghold. This last move was destined to become consequential for the Blockchain World Wire system, which at that time was still being worked on.

BWW Workflow

The mechanisms of the new payment system are quite simple and are based on the notion of Bridge Asset – a value vector on the network that can be exchanged with any fiat currency on each side of a transaction. Because two financial institutions negotiate a payment, "they agree to use a stable currency, a digital currency of the central bank or other digital assets such as the bridge assets between two currencies". Although this formulation presents a number of equity options, the timing of the launch of Stronghold USD suggests that it is the stable currency designed to serve as the main vehicle for the Blockchain World Wire transactions.

IBM also points out that the new financial railway is built to integrate seamlessly with existing payment systems through its APIs, so banks will not have to implement radical hardware changes to start using it. When the fiat currency of the sender is converted into a digital proxy resource, the system instantly transforms it into the respective amount of the receiver's fiat currency. All details of the transaction and payment instructions are then recorded in the distributed ledger.

In an apparent attempt to attract the widest possible range of institutional clients, IBM marketers cautiously specify in a note that "for those who prefer to avoid the use of digital currencies, IBM also provides alternative payment methods, "without defining, however, what they would be.

The importance of native tokens

Even before leaving to explore the territory that is usually considered within the jurisdiction of Ripple – transactional services for large corporate banks – Stellar was destined to measure all his results compared to those of his older brothers. Both Ripple and Stellar protocols are, to a significant degree, defined by the vision of a person – the current CTO of Stellar Jed McCaleb – and as such they share many design features. However, unlike Ripple, Stellar is completely open-source and does not belong to a single business entity. While Ripple has long been regarded primarily as a solution provider for banks, Stellar has developed the reputation of being a payment network for people.

The rise of Ripple to the rank of the third largest asset encrypted by market capitalization at the end of last year was largely based on a series of successful pulls of its services to major financial institutions . The major offers Ripple could secure included an exchange rate service for Santander and a payment app built for a consortium of 61 Japanese banks.

These big victories, however, come with an important caveat: both are based on a technology called xCurrent, which makes no use of XRP, the Ripple native token. Meanwhile, the XRP product, called xRapid, has found more modest adoption rates. In particular, several major money transfer services, including Western Union and MoneyGram, announced at the beginning of the year that they would start testing xRapid-based transactions. Several months later, Western Union CEO Hikmet Ersek said the solution produced no significant reduction in transaction costs and was "still too expensive". The inequality in the performance of xCurrent and xRapid has led some critics to conclude that the XRP token does not

Thus, introducing a newly issued stable currency to enhance cross-border transactions on stellar blockchain seems a smart move by IBM and Stellar. In this way, they will retain the "XRP for people" ethos developed around the Stellar XLM token and will clearly delimit the boundary between the corporate and community uses of the stellar book. Of course, there are also other practical considerations immediately at stake. Jesse Lund, the head of IBM's blockchain department, noted in a blog post:

"Volatility and inherent risk mean that most financial institutions are wary of using cryptocurrencies as a basis for traditional business transactions. and why some countries have completely banned their use … The "stability" of stable currencies could result in the improvement of the entire backbone of international banking operations, offering banks an innovative way to significantly upgrade their infrastructure banking and compliance, while contributing to improved operational efficiency and regulatory transparency. "

Intensifying competition

It remains to be seen whether relying on stable currencies will guarantee Blockchain World Wire a significant competitive advantage over solutions of Ripple. What already appears to be an important advantage, however, is IBM's leading position as the leading infrastructure provider for traditional transactional systems: the cost of convincing existing customers to adopt a new technology is far less than it is. acquisition of new ones.

Judging from what is known on Blockchain World Wire, at this point, the design and functionality of the system put it directly against Ripple's xRapid rail in the run for the thanks of global banks. Despite the lack of information on the way in which the two are compared in terms of performance, it is possible to identify some general characteristics of the product that could be relevant as BWW hits the market and the competition rises. In addition to the impressive foundation for the aforementioned adoption, the IBM solution seems appealing due to its versatility. While xRapid uses only XRP tokens as an asset bridge, Blockchain World Wire boasts a range of options that could potentially open the system to many successful integrations and partnerships.

Having said that, it is still unclear when financial institutions will be able to reap practical benefits from the adoption of IBM's new product, as it has not even been tested in the field. In contrast, xRapid has been out there for a while, undergoing testing with some of the major players in the money transfer industry for months.

In addition, it is worth noting that the cross-national market, blockchain-powered financial services are far from a duopolistic agreement split only between Ripple and BWW. At the end of June, Ant Financial, the financial arm of Alibaba, implemented a remittance solution on the blockchain to facilitate transactions between Hong Kong and the Philippines. Meanwhile, the Japanese technology giant GMO is equipping its new online banking service with a blockchain-based transaction system. Because some of these and other emerging platforms will probably have some degree of regional dominance, worldwide, there will be years of tough competition.

The inaugural public presentation of Blockchain World Wire will take place in Sydney in late October. Symbolically, it is inevitable that it occurs in Sibos – an annual summit for the global financial industry hosted by SWIFT.

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