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Remittances take a long time because banks are using a 50-year-old system

LiveMint logoLiveMint 10-09-2017 Vivina Vishwanathan

San Francisco-based Ripple, a global financial settlement solutions provider, has now official entered India. Ripple provides cross-border payment solution. Since India is the largest remittance recipient in the world, it was an obvious choice for the company. As part of its India plans, the company recently appointed Navin Gupta to head Ripple India. Mint Money spoke to Gupta, who has worked with Citibank and HSBC across the globe and was also on the board of National Payments Corporation of India (NPCI) during the rollout of immediate payment service (IMPS) and national automated clearing house (NACH), on India plan, the details on cross border remittance and how it will work. As of now no financial transaction has happened from India on Ripple platform.

Now that you have official launched in India, what strategies have you planned for the India market?

In cross-border remittance today, there is a high amount of friction in terms of transparency and in the fee that is getting charged. In the Indian context, this becomes extremely important because India is the largest recipient of remittances.

Today a bank is not able to provide instant settlement because the messaging and settlement happen separately. Today banks work on a 50-year-old remittance system where they first send messages to each other that they are going to send money. As the message travels, sometimes in the process the message could get dropped.

Only after the messaging layer is completed, the settlement layer starts.

In case of Ripple platform, the message and settlement happen simultaneously. (On the Ripple platform) messaging and settlement will only happen if all the banks that are part of the transaction confirm the settlement.

Can you give us some examples where transactions with Ripple have gone live?

We are live in some corridors right now. For instance, we recently went live in the Japan and Thailand corridor. When you want to send money from Japan to Thailand, if you feed the information in Japan you will be able to see all the exact details—such as fee, foreign exchange rate and the final amount—in Thai baht. There is complete transparency. And within a few seconds money reaches the receiver (in Thailand)and you get the confirmation (in Japan). We are also live in the UK. For instance, a UK bank has built an app from which people can send money—less than £10,000—to the European Union region.

For now, you have partnered with Axis Bank Ltd and Yes Bank Ltd in India. Do you plan to have more such tie-ups with other banks as well? By when can we expect live transactions on Ripple from India?

Yes, currently we have agreements with Axis Bank and Yes Bank. We are speaking to and are in touch with a number of other banks too. And very shortly you will see a transaction happening. The main reason for investing in India right now is for the implementation of these partnerships. I have been hired as country head for India to make sure that we are able to bring the technology to more banks. I am here to make sure that we are able to implement it on the ground and solve any issues that may occur.

Hence, we are making more investments in the Indian market. My responsibility here as the country head is to serve the bank tie-ups in the country. I can’t give numbers but our target is to get more banks on board. Also, I can’t name the other bank right now.

Can you explain how the transactions will work, with the tie-ups that you have with these banks?

Say there is a bank in another country and you walk into the bank, or use any other channel such as ATM (automated teller machine) or mobile banking, for remittance. When you initiate the transaction, details such as fee, exchange rate and final amount are provided to you. After that the money will move to a bank account in India, and from that bank it will move to your receiver’s account. All these processes will happen simultaneously.

There will be debit in, say East Asia, and credit in India and the money will be debited and then credited to your bank account simultaneously. Say for some reason the credit doesn’t happen in India, then the debit will not happen because there is a cryptographic hold. It can only happen simultaneously. Any bank that is doing business in India will have an account in India or an account with a bank that has presence in India. This account is already pre-funded and once someone initiates the money they will debit then send instruction to your bank and then credit the account. Today, a lag exists in the process because messages go first and settlement happens later. So it takes a long time. (With Ripple) the message and debit will happen at the same time in all accounts.

Do you need a transaction relationship with all the banks? How will the tie-ups affect banking and non-partner bank customers?

We need to have a relationship with two banks in the transaction chain—the sending and the receiving bank. Hence, we have built a network called Ripple net. For instance, for the Japan-Thailand corridor we have tie-ups with SBI Remit in Japan and Siam Commercial Bank (SCB) in Thailand for remittance service. In case you are sending money to India, as a customer, if you have a bank account with our partner bank, say Yes Bank or Axis Bank in India, you will get the money instantly in your bank account through this technology. If you are receiving money from a non-partner bank, what will happen is from Yes Bank and Axis Bank the money will travel through the local rail—in this case through IMPS—and you still get the money but there will be a lag of a few seconds.

We are very focussed on building partnerships. There are two things to the partnership—technology and the agreements. If a bank signs up with Ripple, you automatically sign up with the banks in our network. You don’t have to do individual agreements with them. Of course the banks will also need to discuss their commercial agreements. Today these agreements are bilateral, where each bank has to sign up individually.

For cross-border remittance from and to India, will you initially focus on the East Asian, US and Canadian markets; considering the transaction volume is high from these regions?

Absolutely. Our interest area and banks’ interest areas would depend on where large amount of money is flowing into India. On the individual remittance side there is a large Indian diaspora working and living in East Asia. On the corporate side, the focus will be the UK, the US and some Far East as well. And I don’t think people are okay with expensive transactions. Once our product goes live in India, you will be able to compare with existing channels to the one that we offer. You will be able to choose the options.

What will be the impact of this technology on the cost of remittance?

First, the pricing is decided by banks. But we all know that transparency brings down costs. Earlier you didn’t know the final credit amount but now you know the exact amount. The customer will be able to make the right choice. In my mind, democratizing payments will give the power in the hands of the customers.

Many times today, money gets lost due to use of informal channels. As a company, we only provide the technology and software. A lot of cost in the system will get reduced—such as the cost transparency, cost of errors and cost of time. Ripple’s cost is a small fraction of the overall cost. It is unlikely that any cost will be passed on to the customers.

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