SWIFT, the cross border payments system used to settle payments, announced yesterday that it would link R3’s open source blockchain solution at a proof-of-concept stage to improve their current cross border payments function. In November 2018, media reports indicated that the global banking network was looking to forge a partnership with Ripple Labs however, SWIFT denied the rumor, clarifying that they were developing an institutional blockchain solution of their own.
Later that same month, the founder of Ripple shared Ripple’s plans to overtake SWIFT banking network. Ripple Labs was also locked in a legal dispute with R3 over the distribution of 5 billion XRP tokens, the native cryptocurrency of Ripple blockchain network. Both the parties dissolved their argument in September 2018.
Here’s the funny thing. R3’s Corda Settler uses Ripple’s XRP tokens to settle transactions. With a potential association now in dust, Ripple Labs could still benefit from an increase in XRP demand. The SWIFT network currently caters to over 11,000 financial institutions – including banks, brokerages, mutual fund firms, and securities dealers – across 200 countries and have been known as the go-to stable solution for cross border payments.
Ripple was open to partnership
The CEO of Ripple said at a CNBC panel discussion that they were ready to partner with SWIFT. But neither of the companies announced any plans in the future.
The Ripple CEO reasserted that SWIFT was a slow and expensive payment network. He added that decentralization was a better alternative to centralized payment settlement networks.
“Decentralized systems I think over time are likely to win,” Garlinghouse said. “I think that today that is not what Swift is.”
However, SWIFT had maintained its distances from decentralized blockchain-enabled networks, citing asset volatility as one of the major issues. Leibbrandt affirmed that they had to let Ripple’s offer go because their asset XRP was too volatile.
“I think that the big part of Ripple’s value proposition is the cryptocurrency XRP,” Leibbrandt told CNBC. “There we do find the banks are hesitant to convert things into a cryptocurrency right now because of the volatility in the currencies.”
What does this mean for Ripple?
It’s important to note that SWIFT is trialing R3. During this time, SWIFT will still be using XRP on a near-term basis. With the influx of stablecoins, it would be interesting to see whether or not R3 offers more stable alternatives to its new global partner. This still means that SWIFT could potentially shift away from R3 after the initial trial partnership.