Before we begin, can you tell us about Ripple and its offerings?
In a world where video can be streamed from the International Space Station, it’s mind boggling to think that the fastest way to send money globally in real time is to bring it in a suitcase on a plane -- an average international payment transaction takes 3-5 days. Ripple’s goal is to change all that through the use of blockchain -- and to enable the world to move money like information moves today.
Founded in 2012 and headquartered in San Francisco, Ripple is a technology company that provides a frictionless experience to send money globally using the power of blockchain. Ripple’s products are based on blockchain technology and utilise the cryptocurrency called XRP to facilitate cross-border transactions for its network of financial institutions. Ripple also utilizes an interbank messaging system that’s used by banks to send money around the world.
With more than 300 customers in over 45 markets across 6 continents today, Ripple’s products help to minimize remittance costs, cut settlement times from hours and days to just 3 seconds with the use of XRP, and remove billions of dollars in unnecessary intermediary fees.
We are also unique as we’re the only blockchain company whose products are being used commercially by its customers. This is important as we aim to work with existing financial institutions, along with regulators, governments and central banks, to help evolve the financial systems from within.
What is Ripple’s technology? What is the impact of the increasing adoption of blockchain?
Through the use of distributed ledger technology and modern APIs, Ripple allows financial institutions who are part of the RippleNet network to send money globally, instantly, reliably and for fractions of a penny. Being a part of RippleNet solves three key issues with payments: Speed and certainty, liquidity management and standardizing connections and rules across different networks.
Financial institutions that join RippleNet can immediately communicate information about a payment between each other in real-time, and settle the payment instantly -- with no failure. By using this part of Ripple’s technology to originate and receive payments (or just originate). It is quicker, cheaper and more transparent than SWIFT -- but it still requires companies to hold capital in banks all over the world, which is the main cause of the 7% average fee incurred when sending a remittance.
To solve the high cost of remittance due to trapped liquidity, RippleNet institutions can choose to use On-Demand Liquidity (ODL), which allows them to begin sourcing liquidity on demand (i.e. instant foreign exchange when they need it) with the digital asset, XRP. This means even quicker payments, no more reliance on megabanks and no more tied up capital -- approximately 10 trillion USD is trapped around the world now. With XRP, customers can eliminate the need for pre-funding in destination currencies, thus dramatically lowering costs while enabling real-time payments. Fiat (government-issued currency), can be converted into XRP and back to fiat within seconds at a digital asset exchange which supports both origin and destination currency, thus making it extremely convenient for users.
When did you start India operations? Do you have any customers / partners in India already?
Ripple started its India operations in 2017, with offices in Bangalore and Mumbai. Our current customers in India include Kotak Mahindra Bank, IndusInd Bank, Yes Bank, Axis Bank, and Federal Bank.
How big is the Indian market expected to be for you? What plans do you have for India?
India is a fast-growing market, thus making it an investment destination, with many companies eyeing to do so. For example, there are about 35 million Indians who live overseas, and they send huge amounts of money back to India. On average, 7% of the principal value gets taken away every time they remit money to India.
Given that our current version of the RippleNet solution in India does not use the digital asset XRP due to the regulatory landscape, Ripple is keen to introduce the ODL (On-Demand Liquidity) solution to the India market to make remittances faster, easier, better and cheaper through the use of digital assets.
However, before we are able to introduce ODL in India, we are looking forward to clarity around the regulatory aspects of digital assets from the government. Just like other players in the financial industry, we too are optimistic about a robust regulatory framework being adopted by India so that Ripple can help more businesses succeed.
What is XRP and what is Ripple's relationship with XRP? How does XRP compare with digital assets like BTC & Ether? Help us put in context the volatility of XRP and the impact to Ripple?
Ripple and XRP are independent of each other. Ripple is a technology company, while the other is an independent digital asset. XRP is the native digital asset on the XRP Ledger, which is an open source, permission-less, and decentralised blockchain technology that can complete transactions in 3-5 seconds. XRP can be sent directly without needing a central intermediary, making it a convenient instrument in bridging two different currencies quickly and efficiently.
XRP and its Ledger technology are powerful tools that promote innovative technology in the payments space. XRP is faster, more scalable and less costly when compared to other digital assets in the market.
Ripple’s focus is to build technology that helps unleash new utility for XRP and transform global payments. There are also third parties that are pursuing other XRP-related use cases.
Although many differences exist between digital assets like bitcoin (BTC), XRP and Ether (ETH), these independent assets have the following benefits in common:
- Distributed validation with a cryptographic guarantee of settlement
- Increased settlement speed and reduced settlement risk
- The immutability and auditability of transactions
Ripple and XRP together are aimed at creating unprecedented cost-efficiency and global reach in the world of interbank settlements, making even low-value corporate disbursements and retail remittances profitable. Banks can realise cost savings beyond 60 percent with XRP.
Unlike digital assets issued by financial institutions and central banks, global accessibility of independent digital assets is not limited by geopolitical or competitive reasons. Moreover, because independent digital assets are not backed by cash, they do not create liabilities like the former.
Most importantly, as XRP settles in seconds (as opposed to traditional payments that can take several days), the exposure to volatility is limited during the course of a transaction. This also reduces foreign exchange exposure, minimizing risk especially for low cost remittances.
With the recent news about looking to introduce a law to ban cryptocurrencies, as the government feels a legal framework may be more effective than a circular from the Reserve Bank of India, what is your opinion on this?
In our opinion, a blanket or overall ban is not the solution. Regulation rather than relegation would be a better way of dealing with digital assets and its effect on innovation. Taking inspiration from developed markets, the best approach would be to create a robust legal framework that incorporates all stakeholders in the financial ecosystem.
We believe that Indian policymakers would be able to navigate the responsible adoption of digital assets in a better, more informed manner with inputs and suggestions from both public and private sectors. There is a wealth of precedent available in India’s financial and technological policy that may be followed here; in the past, both the Data Privacy Bill and the Indian Bankruptcy Code have had the benefit of public consultations, as does the Telecom Regulatory Authority of India (TRAI) regulation of net neutrality. Accordingly, we urge India’s policymakers to initiate a similar process of public consultations in connection with any proposed policy action touching upon digital assets in India. If the government takes the lead in enacting positive policy changes, it will initiate an opportunity for Indian businesses, entrepreneurs, innovators and consumers to benefit from digital assets in a safe and meaningful way. A thoughtful regulatory approach towards adopting and implementing these technologies will facilitate India maintain its competitive edge.
You also have come up with a policy paper recently. What was the purpose for this? Can you highlight the key aspects it covers?
For a long time, the narrative in India has been that blockchain is good, while crypto has been perceived as bad. The idea behind this policy paper was to define and highlight how the two go hand-in-hand. While there have been a lot of high-level discussions around what a good regulatory framework should look like, we wanted to share a detailed and informed perspective to policy makers.
The policy paper titled ‘The Path Forward for Digital Assets Adoption in India’ takes into account a global economy with a growing appetite for the adoption of digital assets. It covers short, mid, and long-term solutions, and goes into specific legislation and regulations that need to be amended or included in order to take advantage of this financial revolution.
Through the paper, we urge Indian policymakers to have extensive consultations with stakeholders in the digital assets ecosystem and the wider public before taking any policy action touching upon digital assets in India. The paper proposes that any regulatory framework should be technology-agnostic, principles-based, risk proportionate and not rules-driven.
We surveyed regulatory frameworks implemented by other jurisdictions to establish benchmarks for Indian policymakers. More specifically, the paper proposes a taxonomy of digital assets, illustrating how countries across the world are practically defining and classifying digital assets.
The paper also talks about low-hanging fruits that can be realised in the short-term. An example involves Gujarat International Finance Tec - City (GIFT City), that hosts the first International Financial Services Center (IFSC) in India. There is a similar IFSCin Abu Dhabi where they introduced a well thought out framework for digital assets that is separate from the UAE central bank. We propose that GIFT City use this as a point of reference to allow trading of digital assets in the short term.
There is a lot of potential in India, and opportunities for many ambitious innovators who can succeed with the right kind of regulatory framework and support. With such a high number of Indians employed overseas, India is the highest recipient of foreign remittances. This means that there is demand for fast and cost-efficient methods of cross-border transactions, made possible by enterprise solutions such as Ripple’s On Demand Liquidity (ODL) that leverage digital assets.
After the Supreme Court's announcement to lift RBI’s ban earlier this year, we have been engaging with concerned government bodies to help set up a framework that can be beneficial for India and the industry as a whole.
There are many examples cited in the paper that should quickly dispel any apprehension about adopting digital assets and hopefully will serve as a guide. Following are our key recommendations for Indian policymakers:
- Adopt a digital asset taxonomy consistent with global practices – providing clarity to the legal character of digital assets
- Enact a facilitative legal framework for digital asset service providers at the Gujarat International Finance Tec-City (GIFT) in the short term – to attract mature global participants to GIFT for developing enterprise use-cases of digital assets
- Modify RBI’s Regulatory Sandbox Framework to remove “cryptocurrency” and “crypto asset services” from the negative list – thereby offering service providers an opportunity to test the value proposition of this new technology in the Indian context
- Implement a conducive regulatory framework for digital assets by amending specific financial sector laws - for example, empower the Securities & Exchange Board of India (SEBI) to license, regulate, and supervise digital asset service providers.
The pandemic has caused a sudden and rapid shift to digital mediums due to forced lockdowns. As a result, banks have noticed an uptick in the adoption of electronic payments and online banking as a safer, more convenient and easier alternative to physical banking or ATMs. We anticipate this trend to continue even after the pandemic.
Our customers consist of financial institutions such as banks, payment providers or processors, and remittance providers, which all play a pivotal role in facilitating remittances. During the COVID-19 pandemic, their customers have faced unanticipated job losses and income reductions on a massive scale, despite the need to send money to families and friends remaining constant.
Currently, a lot of people are not able to access brick-and-mortar branches to send or receive money. There are millions of people who depend on remittances for basic necessities like food, medicine, housing and utilities. More so, the financial market is experiencing high volatility, which is resulting in higher transaction fees.
During this critical time, the ability to send and receive money quickly, reliably and inexpensively plays a larger role than ever. In response, Ripple is partnering with customers including TransferGo and RationalFX/XendPay to waive or reduce end-user remittance fees to ensure the money goes where it belongs — and into the pockets of those who need it the most.
What, according to you, are going to be the trends specific to this industry? How will new payment methods like digital assets improve the scenario?
The most important cue to trends in this industry is the massive spike that India has witnessed since March 2020. Coupled with a historical depreciation of the rupee, digital assets are emerging as a less volatile form of wealth. Even as India faces its worst economic crisis in almost three decades, local trading, especially on peer-to-peer exchanges, has peaked. This is believed to be a direct impact of the Supreme Court lifting RBI’s ‘unconstitutional’ two-year ban on cryptocurrencies in March, only three weeks before the country went into lockdown.
While the per-transaction value of remittances has reduced, individuals are still remitting money to friends and family who depend on it for essential needs. In fact, remittances are a key source of capital income in low-income countries. According to World Bank data, middle- and lower-income countries receive remittances at about the same level as foreign direct investment. For some developing countries, remittances can represent between 5% and 20% of their GDP. This is becoming a serious issue for developing countries, which are some of the largest receivers of remittances, and are heavily dependent on the same for boosting the economy.
This is where companies like Ripple are helping people sustain their remittances without having to worry about the high costs of remittance. During these challenging times, many of our customers depend on RippleNet, especially ODL. The ability to send and receive money quickly, reliably and inexpensively today plays a larger role than ever before and we believe that many customers who are able to pass on the benefit of Ripple products and services to their users will find it hard to revert to previous methods.
Digital assets have the potential to promote financial inclusion and the ability to send and receive money quickly, reliably and inexpensively. We are confident that the convenience, transparency, low costs of transaction, easy-to-use payment system, powered by blockchain is going to be the future of financial transactions. However, if India wants to be a part of the new emerging global financial ecosystem, it will need a strong legal and regulatory framework to be its backbone.