Overcoming an identity crisis
Before it can conquer the world, though, Ripple will have to sort out its branding. It is practically the only blockchain startup selling enterprise software to major banks while funding development costs with its own cryptocurrency. That more serious attention has not been paid to Ripple even by many cryptocurrency enthusiasts—and that it hasn't garnered headlines the way bitcoin and Ethereum have—may be due in part to poor nomenclature. Another reason, undoubtedly, is the series of pivots Ripple has undergone.
"They've had something of an identity crisis about who their customer is, and what problem they are trying to solve," said John Light, who has consulted for startups working with Ripple's technology.
Ripple's initial plan was to "build a better bitcoin," Garlinghouse said. Its leaders were prescient regarding issues with bitcoin's software that have now come to the fore, such as its ability to process
only seven transactions per second. Ripple wanted to be able to handle transaction volume on the scale of Visa.
They also decided that so-called "bitcoin maximalists" were wrong about being able to replace incumbent banks, much less government currencies, with digital cash. Rather than rail against the status quo, they decided to work with banks to improve it.
But Ripple's cryptocurrency, XRP, hasn't gone away, which tends to muddy the picture.
"It is confusing as
hell," admitted Miguel Vias, Ripple's head of XRP markets.
Vias knows from experience. After being hired last December, he made a point of going to bitcoin meetups to spread the word about Ripple and XRP. People were surprised to hear that XRP was still around, he says
It takes a while to sort through Ripple's offerings. There is the Ripple consensus ledger, a public blockchain network tied to XRP (confusingly also called Ripple). There is an enterprise software solution that has nothing to do with digital currency but which purportedly allows banks to send cross-border payments more quickly, transparently and cheaply. (To get the full benefit, though, the banks on either side of a transaction both have to be running the software.) And there is the Interledger Protocol, which works in tandem with the enterprise software and connects ledgers of different types—a private bank ledger and a public blockchain, say—for the purpose of settling payments between them.
Gradually, Ripple is incorporating this array of products and services—formerly a public-relations liability—into a singular vision.
"They're slowly coalescing around some of these various solutions," Light said.
'A better Swift'
When approaching banks, Ripple leads with its enterprise software—"a better Swift," according to Vias—along with the Interledger Protocol. Ripple executives talk a good game about how blockchain technology disrupts the "
correspondent banking paradigm," in which banks with no direct relationship rely on intermediaries in order to send payments to each other. But Ripple's current software still depends on a global network of correspondent banks.
Rather than total disruption, what it promises are faster settlements with more transparent fees.
International banking today, said Garlinghouse, has "a speed problem, a cost problem, plus an error rate problem." As cross-border payments ping-pong among correspondent banks—as many as five for a single payment—each one takes a piece of the action in the form of fees or currency-exchange charges. The initiating bank often doesn't know ahead of time what the total cost of a payment will be.
International wire transfers between banks cost from $5 to more than $50, plus foreign-exchange charges of 0.25% to 3% and "landing fees" of as much as $20. And the error rate for wire transfers is between 3% and 5%, Thomas said.
Where Swift, the Society for Worldwide Interbank Financial Telecommunication, provides a one-way messaging service, Ripple provides a two-way protocol. This allows for greater transparency: Banks can exchange information and find out ahead of time what the fees and foreign-exchange rates will be, along with the expected date of delivery for the funds. If any of the information is wrong or missing, both banks will find out before the payment is sent, which should keep transfers from getting stuck in the pipes. Once the sending bank has initiated a transaction, Ripple uses the Interledger Protocol to settle the funds and notify everyone of its successful conclusion.
"This is not a science experiment," Garlinghouse said. "This is real production systems moving real value, and we're the only player in the industry that can say that."
