Do Banks Even Want to Go Blockchain?

On June 18, Carlos Torres, CEO of Spanish bank BBVA, declared that blockchain is “not mature” and faces major challenges. During the past month, blockchain’s effectiveness and maturity were also questioned by players as big as the Bank of Canada (BoC), the Russian Central Bank, and DNB, the Central Bank of the Netherlands.

While blockchain can indeed improve the effectiveness of cross-border payments and cut the costs by eliminating the middleman, it hasn’t yet proven itself as a tool ready for industrial-scale use. What’s more important is that some of the banks might not be happy to give up those juicy margin fees.

Do Banks Even Want to Go Blockchain?

Ripple’s attempts to modify the system
Ripple, a California-based payment network and protocol company, was established in 2012. Essentially, it focuses on facilitating transfers between major financial corporations.

Ripple is not quite your average cryptocurrency — some argue it’s not a cryptocurrency at all. First of all, it doesn’t champion the dreams of overthrowing the government along with the banking system. Oppositely, it chose to work with mainstream financial players from the very start. As Brad Garlinghouse, CEO of Ripple, told Cointelegraph:

We were from the beginning really looking at how we work with governments, how we work with banks. And I think some in the crypto community have been very much, “How do we destroy the government. How do we circumvent banks?”

Garlinghouse believes that governments aren’t going anywhere, saying, “In my lifetime, I don’t think that’s happening,” so it’s only logical to cooperate with them and work within the existing regulatory framework. That attitude helped Ripple to land crucial partnerships with important players, including, China-based payment services provider Lian-Lian, the Saudi Arabian Monetary Authority, WesternUnion, among others.

Ripple hopes to pioneer the mainstream financial system with xRapid, its tool for easing cross-border fiat transfers between financial institutions. The platform has recently proven to save transaction costs by 40-70 percent by not having to use foreign exchange providers and has increased transaction speed to “just over two minutes.” In comparison, according to McKinsey research, typical international payments take three to five working days to complete.

In May 2018, Ripple reported positive results for its xRapid pilot. The company tested payments between the U.S. and Mexico. And there are other players who have already introduced somewhat similar features publically, having it out for its retail clients.

Santander’s experience
In April, Spanish-based international bank Santander announced the launch of its Ripple-powered, blockchain-based payment network called One Pay FX, becoming the world’s first bank to do so.

One Pay FX is a mobile application for cross-border payments backed by Ripple’s blockchain. It’s based on xCurrent technology — not the above mentioned xRapid — which doesn’t cut out the corresponding bank from the entire process, thus not quite changing the conventional system, but rather modifying it.

In other words, xCurrent uses immutable “interledger” protocol, which “is not a distributed ledger,” as confirmed by David Schwartz, Ripple chief cryptographer. In xCurrent’s case, the network peers do not have access to a shared ledger, which is the basis of major blockchain networks like Ethereum (ETH) or Hyperledger. However, xCurrent technology allegedly allows to “eventually plug” cross-border transactions into distributed ledgers.

Nevertheless, the technology still allows for cutting the costs and time normally required by traditional international funds transfers. It was introduced to Santander account holders in Spain, UK, Brazil and Poland, with the bank promising to add more countries to the list “in the coming months.” Executive chairman Ana Botín stated that “transfers to Europe can be made on the same day” and the bank aims to deliver instant transfers acr