PORTLAND, Oregon – In the quest for a faster and more traceable way to transfer money internationally, banks were gravitating a few years ago to Ripple, a platform backed by Silicon Valley luminaries and global financial institutions.
Now it’s gotten complicated. New options are surfacing that, like Ripple, use the hot technology called blockchain to send and record transactions across borders. For banks, the challenge is to agree on a standard quickly to fend off rivals like TransferWise Inc. and Cambridge Global Payments, which are grabbing a share of the $30 trillion a year in international transactions between businesses.
“If they don’t run the network, banks are not going to get transaction revenue,” said Alenka Grealish, a manager at Boston Consulting Group who focuses on global transaction banking. Banks make money on each overseas transaction and on foreign exchange.
The debate over transaction technology has thrust Ripple into the biggest battle of its five-year life, against competitors that are often larger, and also innovative and nimble. The platform is developed by a San Francisco startup, also called Ripple, whose backers include venture capital firms Andreessen Horowitz and Google Ventures and banks such as Standard Chartered Plc and Banco Santander SA, through its InnoVentures arm.
Ripple’s advantage may lie in being further along in development. The company is working with more than 90 banks, over 10 of which have already implemented Ripple’s technology in production — meaning that it already facilitates real transactions, even if those may currently be flowing between bank employees. Standard Chartered plans to pilot the technology with business customers by the second quarter of this year, said Gautam Jain, an executive at the bank.
“These are not tests — these are production deployments touching real systems and real activity,” Brad Garlinghouse, Ripple’s chief executive officer, said in an interview. “Ripple is the only company in this space with real customers who are really in production.”
This month, Ripple said that a consortium of 47 banks in Japan is moving toward commercializing its technology.
The company’s revenue — which comes from software sales to banks, transaction fees and providing cryptocurrency XRP — has more than doubled annually for the last three years, Garlinghouse said, though the company isn’t profitable. The company has raised $94 million, including a round last fall, and is hiring more than 30 people globally on top of the 150 employed now, he added.
“We have so far exceeded my expectations in terms of bank demand,” Garlinghouse said. “Notoriously banks have been slow-moving, but they realize they have new competitors entering this space.”
With 15 percent of banks planning to implement full-scale commercial blockchains this year, an army of competitors to Ripple is rising up. These rivals include financial-industry veterans like Visa Inc. and upstarts such as MonetaGo Inc. and the Enterprise Ethereum Alliance, which includes JPMorgan Chase & Co.
“There are more exciting options right now, to which all the eyes are shifting,” Alex Sunnarborg, an analyst at blockchain researcher CoinDesk, said in an interview.
Cross-border payments will also be faster if banks settle on a single option. For example, when two banks involved in a transaction use Ripple, the transfer can be instantaneous instead of arriving the next business day.
Swift, the network that has let banks transfer money in financial messages since the 1970s, is also getting a technology update. Involving more than 90 banks, it allows for same-day use of funds, transparency of fees, and other features customers have long asked for. Earlier this year, Swift also began testing using the blockchain from the Hyperledger consortium.
Hyperledger has an advantage over Ripple because it doesn’t focus just on cross-border payments, but can help banks modernize many parts of their businesses, said Brian Behlendorf, executive director of Hyperledger.
“It’s the difference between Microsoft Windows and Microsoft Word,” Behlendorf said.
This year, Visa will debut a blockchain-based network that will let businesses pay each other through their banks in near real time. The network uses blockchain technology from San Francisco-based startup Chain.
“Visa already has 17,000 partners in their network,” Adam Ludwin, CEO of Chain, said in an interview. “They have a global footprint. And Chain has blockchain infrastructure that’s production ready. Together we are able to go to market very quickly and deploy something with a set of partners that already trust the Visa brand.”
The competition between Ripple and its rivals to emerge as the new standard in international transfers is similar to the early days of video recording, when VHS and Betamax battled for supremacy, said Jain of Standard Chartered.
“You take a bet on what you believe is stronger,” he said. “If it doesn’t take off, we are willing to re-evaluate.”
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