In a recent blog by Ripple, they spoke about legacy banking systems and how to replace them. Ripple’s new innovative and disruptive financial solutions have gone mostly unnoticed in terms of visibility in the financial sector. The pervasiveness of legacy banking systems and non-bank financial institutions has led to a general stagnation in terms of innovation and new solutions to move value.
The current transaction banking system is settled in the rut of “good enough for right now”, stifling progress and excitement towards innovation. As said by Jinal Surti, GTM Strategy & Product Marketing at Ripple:
“Far too many leaders in the space are missing the forest for the trees — shrugging off advances as not important to their business objectives today, or in the future.”
Transaction banking services have begun to lose out on market share globally to non-bank financial institutions. As per a study conducted by McKinsey group, an American consultancy firm, non-bank money transfer operators like MoneyGram or Western Union have captured 40% of consumer-to-consumer payments. The same goes for consumer-to-business payments, with traditional bank systems losing out on 30% market share.
Non-bank financial institutions have also begun to move upwards in scale, catering to SME clients. Money transfer services have also begun an upswing, as payments are the insertion point for non-banks, according to Surti.
The necessity of nostro and vostro accounts in today’s banking systems has led to solving problems of friction-filled and non-streamlined transfers. The current market is fragmented, with the biggest banks and biggest networks sitting at the apex of the pyramid.
Digital assets and services offered by Ripple aim to disrupt this by affording small banks and non-banks the “ability to send money across borders without needing pre-funded destination liquidity”. This is, in effect, democratizing the global access to cross-border payments and re-shuffling the hierarchies of financial institutions.
As Ripple states:
“…it’s about a scalable, real-time, on-demand infrastructure that can deliver excellent customer experience while reducing the marginal cost of a transaction (including liquidity costs) to ZERO.”