“It isn’t really sexy.”
That’s how Leonard Jaramillo, VP product development at Earthport, describes the way his payment services firm is using distributed ledgers, contrasting its approach to the tech to more convoluted use cases involving QR codes or ‘blockchain’ technology.
Jaramillo is discussing an integration of Earthport and Ripple technology that takes advantage of the efficiencies of distributed ledgers, without using a form of digital currency, or asset linked to the ledger itself.
This means Earthport is using the Ripple Consensus Ledger, the company’s open-source distributed ledger technology, but not its native asset, XRP. Even without using this part of the offering, Jaramillo argues Ripple helps make its cross-border payments processes “better and faster” for all parties involved.
Jaramillo told CoinDesk:
“There’s still a correspondent with bank A and bank B, and we use currency held at bank A and bank B. Structurally, that isn’t fundamentally changed, you still have counterparties. The advantage is [transactions] now all happen very quickly and everyone reconciles to single balances on the Ripple Consensus Ledger. They get driven down to near real-time.”
Jaramillo said that, in this context, the main benefit Earthport receives from Ripple is the ability to unite correspondent banks and market makers in the same ledger for the purposes of cross-border transactions.
“It works solely on fiat currencies. There’s no bitcoin, there’s no XRP. There’s no digital bridging asset, it’s standard [foreign exchange],” Jaramillo emphasizes.
Earthport’s correspondent account network is already live in 60 countries and at 40 institutions. By leveraging this existing account structure, the company has since 1997 worked with banks to offer lower-cost FX conversion.
But the innovation in its latest distributed ledger offering, Jarmillo said, is in the information sharing between the parties this allows.
“Earthport, banks and market makers can be in the ledger system. Today, it’s just the banks and their counterparty,” he said. “There is a single transactional record, everyone can reconcile, everyone can see the balances.”
No cancer cure
To onboard to the system, each bank receives a Ripple node, and in turn, the bank is able to access Earthport’s existing global payment services network.
Earthport also onboards market makers to its system, which determine the bid/ask rates for transactions and then facilitate cross-border payments for clients in trades using traditional government currencies.
In this light, Jaramillo suggested that the hype around blockchain technology more broadly is overblown. For example, he called certain efforts “dog and pony shows” that perhaps overstate the importance of new digital assets or suggest that collaboration is needed for the benefits of shared ledgers to be realized.
“[Shared ledgers] are not going to cure cancer or stop global warming, but it is a tool that can make processes more efficient, and we’ve figured out a good way without a whole lot of work required,” Jaramillo said.
Unlike proof-of-concepts in development, Jaramillo asserts that Earthport’s program is live today, and that as such, it is able to clearly show clients the value of the technology.
“We can show them, this is the entire process flow, there’s how compliance works, here’s how fraud detection occurs. We do compliance and AML,” he said.
Jaramillo said that this ability helps mitigate concerns of clients who may be more familiar with the open bitcoin blockchain, which uses a largely anonymous network of validators.
“It’s no longer a tech that lives in a lab, it’s real-world applications, real-world bank accounts, real-world financial transactions that can be audited and reported on, and it brings it reality so banks and market makers can jump in,” he said.
No need for XRP
As for the role of XRP, the Ripple Consensus Ledger’s publicly traded token, Jaramillo said it isn’t needed for this project because the traditional market makers it works with already have access to the currencies they need to facilitate trades.
“There’s enough individuals who do this now. There’s not a lack of liquidity,” he continued.
Studies conducted by Ripple still suggest users of its Ripple Consensus Ledger can save upwards of 40% on trades by using XRP, a figure slightly higher than the savings achieved by those who do not use XRP.
Jaramillo said that while he sees the value in potentially encouraging market makers to use a “common asset” between parties, regulators have perhaps not given sufficient guidance for financial services firms like Earthport to leverage these offerings.
“I understand how a digital currency could be used, and I think there’s potential for that in the future, but the chasm that is between us and that reality is no central bank or government or institution in the world has given approval to use a digital currency,” he said.
He said that, in this light, both bitcoin and XRP, as well as other alternative digital currencies currently fall into a gray area, and that even without these tools, Earthport’s solution enables the same efficiencies but in US dollars or British pounds.
“Earthport is in the business of providing banking solutions to banks. We brought Ripple in to make banking better.”
Disclaimer: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Ripple.
Image via Earthport