In this final installment in our miniseries on “Demystifying Cryptocurrencies, Blockchain-based Applications and Opportunities in the B2B Payments Space" in partnership with Ripple, we explore new and more efficient ways for banks and other financial services companies to source liquidity, thanks to blockchain.
Blockchain technology has revolutionized the way payment providers access liquidity and process remittances across borders. While problems persist with traditional payment methods that dominate the global payments system (for now), banks and financial organizations that are looking to become more efficient are turning to blockchain applications. These include global financial groups MoneyGram, Cuallix, IDT Corporation, Mercury FX, Western Union, and as recent as today Cambridge Global Payments. These financial institutions have recently partnered with Ripple, to pursue a faster, more cost-efficient payments using xRapid, to source liquidity.
Why are payment providers turning to new liquidity sourcing solutions?
Traditional methods of unlocking liquidity and sending payments across borders typically take at least three to five days. This duration of time can also rise significantly when sending funds to emerging markets, since it often requires pre-funded local currency accounts around the world.
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For both the sender and beneficiary, the consequence is that funds are tied up in transit for days or weeks. This can create problems with cash flow and if payments regularly take long to settle, sender-beneficiary relations can become damaged.
The costs involved are also typically high for conventional cross-border payments. This is especially the case in the event of a foreign exchange (FX) transaction rather than a transfer exclusively in U.S. dollar or other reserve currencies.
How are they leveraging blockchain technology for speed and cost?
Moving away from the traditional legacy system of sourcing liquidity and processing cross-border payments to embracing blockchain-led solutions represents a considerable opportunity for banks, payments providers, and financial institutions alike.
Payments providers can source
liquidity faster, minimize
costs, and benefit from instant
access to the platform’s own
Using Ripple’s xRapid solution as an example, payments providers can source liquidity faster and minimize costs, benefiting from instant access to the ledger’s native digital asset: XRP. Some of the advantages from leveraging corporate-grade blockchain-based applications like xRapid are:
On-demand liquidity: sourcing liquidity in real-time without the need to pre-fund nostro accounts.
Minimized liquidity costs: Because xRapid uses a digital asset, XRP, to offer on-demand liquidity, FX and associated costs are much lower than traditional methods.
An improved customer experience: Not only is there less time waiting on payments to settle, but clients are no longer kept in the dark on payment progress as customers receive payment status insights in real-time.
Faster payment settlement: XRP settles payments in seconds from start to finish, a critical detail that makes it stand out from other digital assets. Additionally, thanks to this extremely fast transaction time, exposure to any price volatility is minimized as well.
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Through blockchain-based payment platforms, banks and financial institutions could finally execute real-time foreign exchange settlements. What this means is that they have the game-changing ability to unlock liquidity and access multiple corridors with one pre-funded originating account.
Recap our series in partnership with Ripple: