November 2015:

Danny Aranda is Director of Business Development at Ripple where he is responsible for building the ecosystem among financial institutions, payments companies and technology partners. Prior to Ripple, Danny founded an enterprise charity donation platform and started his career as an investment banker performing mergers and acquisitions focused on media and technology.

In the developing world, two significant barriers prevent secure, cost-effective remittances for the poor; access to formal electronic financial channels; and the high cost associated with cross-border funds transfer. Towards broadening access, mobile banking has presented a viable path towards establishing an account for everyone. Towards reducing costs, there are inherent risks and limitations that beset the infrastructure for cross-border payments and settlement that all services (whether mobile, bank or money transmitter) rely on. These issues include:

• Latency, where finalized settlement takes two days or more to process
• Inadequate controls for compliance and money laundering risks
• The complexity and lack of transparency in the funds transfer process between multiple counter-parties
• High cost of funding liquidity in different currencies to make transfers possible

These issues are symptoms of a greater interoperability challenge that prevents acceptable service to the poor and hinders overall growth of the financial services ecosystem.

This challenge is widely recognized and a diverse range of participants globally is seeking to address them. Examples include:

• Government: The creation of new payment systems at the national level have demonstrated how modern approaches can broaden access, reduce cost and improve the end customer experience. These include initiatives such as SPEI in Mexico, FPS in the UK and NPP in Australia. Adjacent to this is the development of multi-country regional payment systems with a cross-border scope and includes initiatives such as the SIRESS from the Southern Africa Development Community.
• Commercial: Private ventures are embracing the opportunity to serve the financial needs of customers directly, particularly in the retail market where there has been an increased activity in remittance offerings, such as Xoom and Transferwise, as well as account and wallet offerings such as M-Pesa.
• Technology: The broad interest among the media, technology sector and financial institutions in the potential of new emerging technologies related to the blockchain and distributed ledgers.

The solution would be payments systems that rely on open-source, neutral standards as core components of their architecture to facilitate ubiquitous interoperability. These standards would be defined within collaborative, process-driven venues such as the W3C and BIS. Such payments systems would exhibit the following capabilities: instant; end-to-end transaction visibility; reduced settlement risk; and support competitive liquidity management across any local currency. New technologies will be one facilitator towards accelerating the enablement of these capabilities to realize a vision for an improved cross-border experience: instant, straight-through processing between any two accounts globally at the lowest possible cost.

As the Level One Project highlights, payments are the connective tissue to a financial system. Improvements to its underlying architecture have the potential to drive rapid and fundamental innovation throughout the financial ecosystem. Participants will be able to offer customers new and novel solutions that profitably and sustainably serve the poorest segments of the population.

At Ripple, we believe that distributed financial technologies will be a catalyst for these innovations. Long term, we see the evolution of an Internet of Value built on industry-defined open standards, where the world can exchange money as fast, easily and cheaply as we exchange information today. This vision begins with focusing on specific, critical problems and delivering robust solutions. We’re very excited about the opportunities ahead and to continuing working with partners throughout the ecosystem to improve the cross-border settlement infrastructure.