Ripple offers institutions the cheapest way to make cross-border payments, according to a new report from DBS Bank, the largest bank in Southeast Asia.
The report ranks traditional forms of moving money domestically and internationally. When it comes to international payments, it highlights SWIFT as the most expensive way to move money, followed by ACH transfers, and then Ripple as the most cost-effective method.
“Normally, corporates try to minimize the cost of payments. All else being equal, domestic payments will be cheaper than cross-border payments, and this is a driver for IHB and cross-border ACH.
In general, the order of preference for domestic payments is usually:
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- RTGS: most expensive
- Cheques: expensive
- Fast/immediate: Cheap
- ACH: Cheapest
Cheques are often free in terms of bank fees, but when corporate handling costs are included they are expensive. Over time, fast or immediate payments will replace ACH, and probably be free.
For cross border payments the order is:
-
- SWIFT/ Telegraphic transfer: most expensive
- Cross-border ACH: cheaper
- Ripple: Cheapest”
The report appears to focus on Ripple’s payment messaging system xCurrent which is designed to be a faster and more cost-effective alternative to SWIFT. It also analyzes cryptocurrencies at large, looking at the pros and cons of crypto compared to cash.
“A critical underpinning of all payment instruments, other than cash (notes and coins) and some cryptocurrencies, is that they all resolve to central bank money.
When a bank credits a customer account, that entry is always underpinned, via netting and aggregation and sometimes with different timing, by an interbank entry across the banks’ accounts with the central bank. Cash (notes and coins) is also ultimately central bank money, cash is equivalent to a central bank promissory note, and was historically exchangeable for gold.
Only cryptocurrencies are not backed by central banks, which is a source of many attractions and considerable risks. Since the end of the gold standard (variously in 1931 and 1971 for the USA), central bank money is what is call fiat money, it has value because the government says it has and because (in most markets) we choose to believe its value. This is why inflation is so feared. Cryptocurrencies do not have any authority behind them, so their value is purely a matter of market psychology, resulting in volatility.”
DBS Bank is Singapore’s largest lender, with $333 billion in assets. You can check out the full report here.
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