Time to separate the wheat from the chaff

While everyone else is getting together to hedge their bets, there are some just quietly getting on with it.

Time to separate the wheat from the chaff

Take Ripple, for exam­ple: it secured its first bank clients in autumn 2014 and has been slowly but surely expand­ing its global remittance business, bank by bank, market by market ever since.

Its latest coup is Santander in the UK, which is piloting an app, underpinned by Ripple’s technology, to allow staff to make instant payments from sterling into euro or dollars, using Apple Pay. If all goes well, the app will be made available to customers.

Ripple’s business model is instantly under­standable. It cuts out the correspondent bank, eliminating the ‘middle man’ surplus cost and time of the payment journey.

The company started out with CRB and CBW Banks in the US, followed swiftly by German community bank Fidor and has been making progress globally. Ten banks are implementing its solutions commercially, not just experimentally.

Others such as Digital Asset Holdings, Everledger and Ethereum have also been getting on with it, offering services which go beyond payments and exploit the shared ledger concept to cut fraud and empower the consumer.

Not having a common standard in the payments industry causes huge bottlenecks and costly processes. The argument is not so much whether to have one or not, it is how exactly to design it, how to pay for it and, ulti­mately, how to get everyone to collaborate. Once again, it is a people problem.

“Yes there is hype but yes, there is also something there,” said Blythe Masters, CEO of Digital Asset Holdings at the SWIFT Business Forum in London’s Tobacco Dock recently.

“To mutualise and share financial infra­structure is the opportunity to eliminate extremely significant components of the post-trade financial manufacturing cost base, if you will.

“In an environment with compressed ROEs, that’s a really interesting proposition. We are not talking about 5% or 10% out of any given cost base, that one would expect to do in a year. We are talking about the oppor­tunity to cut 30%, 40%, 50% out of cost bases,” Masters explained.

Can’t argue with that. But does it require global stakeholders to transform their opera­tions simultaneously? Not neccessarily.

Central infrastructure providers such as ASX (Australian post trade market infra­structure operator) and America’s DTCC (Depository Trust and Clearing Corpora­tion) are in advanced stages of evaluating blockchain-based technology. If and when they roll it out, it will be on a giant scale to a huge number of banks and others worldwide.

Bankers all over the place are flying the nest to consult on digital transformation and blockchain. Of course this doesn’t mean that long-term, viable solutions are being devel­oped; it is simply a reflection of where the VC landscape is most fertile.

Once funding dries up, the wheat will inevi­tably sort itself from the chaff and any other viable contenders, not mentioned here, will emerge.