The path for any bank to approach new technology isn’t a simple one. From first learning about a technology to discussing it with regulators and stakeholders, to finally integrating it with existing infrastructure, the timeline often constitutes a lengthy testing and review process.
Yet despite these hurdles and the broader banking industry's apprehension, CBW Bank and Cross River Bank have become the first US institutions of their kind to adopt Ripple's distributed open-source payment protocol.
In conversations with CoinDesk, executives from both banks explained why protocols like Ripple are a step toward what could become an "Internet of money", and how these systems can change the way people send money around the world.
Cross River Bank president and CEO Gilles Gade explained:
“It makes the system a lot more efficient. We hope that other banks follow suit, whether they’re community banks or larger banks, that are not in the money centers. I think it would be a welcome addition to have anyone come in on the network and participate in this.”
The companies join Germany-based Fidor as the only banks to adopt the Ripple protocol in a move that represents the US banking industry’s first foray into what is still a largely experimental corner of finance technology.
Early days for new protocols
CBW Bank chairman and CTO Suresh Ramamurthi told CoinDesk that the banking industry has moved slowly to embrace new technologies – particularly open-source protocols. He said the apprehensions shared by many banks today are similar to those expressed in the mid-90s during the early days of the internet.
“The speed at which you’re able to connect the world now – if you went to someone in 1990 and said that you can connect everyone – they would tell you that you were out of your mind.”
He went on to explain that open-source ledger systems like Ripple allow the ability to create a sort of "Internet of money", a term used by other observers to describe how digital currency technologies are developing.
Ramamurthi added that future protocols could potentially emerge, but the options being made available today “meet our needs” and can solve key industry challenges.
Industry needs innovation
Both executives spoke at length about how as an industry, banks understand there are chronic issues that need solving. Ramamurthi said that from an infrastructure standpoint, banks need solutions like Ripple because otherwise they risk being shut out of the globalized banking market by larger institutions.
He told CoinDesk:
“There is a need to connect many other banks in the world in a fairly and market-efficient fashion.”
Gade remarked that given the outsized influence of large banks, smaller institutions that want to grow can benefit from utilizing low-cost solutions like Ripple. He argued that small banks would gain a significant competitive edge by doing so:
“I think there’s a tremendous opportunity here for smaller banks to beat larger banks on cross-border transactions.”
Ramamurthi explained to CoinDesk that a key challenge for banks that send cross-border transactions is making sure those who are sending money aren’t on any terrorist or money laundering watch lists. Given the velocity of money flows, this can create operational issues – and higher costs.
By using real-time settlement ledgers like the one Ripple offers, Ramamurthi said banks can reduce the friction created when meeting government oversight standards.
Call for more banks
Gade said that in order for concepts like the Ripple protocol or distributed transaction settlement networks to work, there need to be more parties willing to participate. He said banks can’t afford to let chronic operational problems worsen over time, and challenged smaller institutions looking to improve efficiencies to consider technologies like the Ripple protocol.
Ripple CEO Chris Larsen told CoinDesk that given banks' conservative nature toward technology, any kind of integration is going to be slow.
“What we’re focused on is being currency agnostic. Any of these new technologies, it's hard to explain to banks when you have the additional currency and payment rail. That’s a lot of to chew off. So to let them use their own currency, dollar, euro, whatever they’re offering, reduces the friction there.”
Giles said banks that are apprehensive about adopting open-source protocols like Ripple should consider partial roll outs or trial periods. He remarked that a bank’s role is to mitigate risks and improve efficiencies, which makes it imperative that they always be on the lookout for new ways to work better.
Gade added that any bank wishing to learn more about Ripple should reach out and ask questions, and that that ultimately, those banks will find that the Ripple protocol isn’t that far off from what they use today.
“At the end of the day, it’s just a ledger system,” he said.
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