Cross-Border Payments — Ripple vs Stellar
The Covid-19 pandemic has affected every sector including B2B cross-border payments. A recent study done by Juniper Research suggests that the cross-border payments value will only exceed the figures it reached in 2019 by 2022. Juniper has predicted that post a 30% growth, the B2B cross border payment value is going to be around $35 trillion.
The research also outlines the potential of blockchain networks in the cross-border market industry and how instant payments can be beneficial for it.
“Instant payments schemes are built on ISO 20022, which unlocks additional messaging capabilities. These can be used to inject transparency and build new services such as automation, which will add significant value to complex accounts payable processes”. — Nick Maynard, Juniper Research Author
When it comes to cross-border payments one of the blockchains which has been popular amongst businesses is Ripple.
What is Ripple?
Ripple is a DLT platform which was designed and developed to facilitate cross-border payments. The developers saw two major problems in the cross-border payments:
· High cost
· Long processing payment time
Ripple has been working to make the process smooth as it empowers financial institutions. These institutions need to interact with multiple others in order to process an international payment which in the end translates to high cost and long processing periods. With RippleNet, financial institutions like banks can transfer an international payment instantly without the need to involve an intermediary or a third-party.
What is Stellar?
Both Ripple and Stellar were developed by Jed McCaleb. Stellar was launched in the year 2014 again as a blockchain platform to support cross-border payments. What’s different this time was the fact that instead of enabling financial institutions like banks, Stellar aimed to help countries where the remittance sector aided the growth of GDP.
Centralized and Decentralized
Ripple for the longest of time has been criticized for its centralized nature. Ripple’s code is not open-source, however, XRP Ledger has been built on Rippled source and is an open-source project.
Stellar in comparison is completely open-source and decentralized. Decentralized blockchain are based on independently handling the usage of nodes it makes the whole system very stable. Stellar is run by the Federated Byzantine Agreement (FBA)protocol. In the FBA consensus, rather than waiting to verify a transaction until network agreement, individual nodes choose other trustworthy nodes called Quorum.
Number of Transactions
There is no denial to the fact that both these blockchains have not been able to generate numbers like Visa which is able to process 65,000+ transactions (as per usa.visa.com) Ripple at this point of time can manage 1,500 transactions per second and Stellar is said to go upto 4K transactions per second.
“It really depends on the hardware you are running Stellar Core on, so it is hard to give solid numbers. We’ve gotten it up to 4000 transactions per second, and that wasn’t on that crazy of hardware.” — Jed McCaleb
Can Ripple or Stellar handle the rising Remittance Payments?
World Bank data shows that remittance payments to low- and middle-income nations in the year 2019 reached a record high as the migrants sent a whopping $529 billion to their home countries. Yes with Covid-19, the amount has been predicted to fall this year around 20%. Even at 20% less can Ripple and Stellar manage to transfer such huge money with a transaction rate of 1.5K TPS and 4K TPS respectively?
The worldwide average cost of sending money across the border still remains high and is currently around 7 percent. Banks are labeled as the most expensive remittance channels, as they charge an average fee of 11 percent.
This high transaction rate may not affect large, multinational corporations that have the capability to negotiate rates and transaction fees for high volumes. The problem is with small businesses and individuals sending and receiving money.
Did the Swiss Bank find a solution by putting Ripple and SWIFT on one platform?
Ripple has recently entered into a partnership with SWIFT for the Swiss Banking giant IBIS Management Associates Inc. The solution will work within a large network of partners. This network enables financial institutions to efficiently engage with hundreds of counterparties and settle payments in real time with a single API connection.
