Ripple: Decentralized ledger technology can save banks 42% of payment fees

Ripple has shown that banks using the Ripple network and its native crypto token XRP for cross-border payments can save up to 42% in fees compared to using today’s banks. The findings were published in a 15-page report published by the decentralized ledger technology (DLT) startup. Titled “The Case for Banks to Cut Costs,” the report clearly provides Ripple’s products that first achieved cost savings.

In addition, the report also stated that if the surveyed banks used the Ripple network (without XRP) when making international payments, they could save 33% in fees, 65% in liquidity costs, 48% in payment operating costs, and 99% in Basel III tax execution costs.

The findings come at a time when blockchain and decentralized ledger technology are widely touted as having the potential to bring new efficiencies and cost savings to industries, particularly finance. However, information on the level of savings that can be achieved has been scarce, largely because most projects are still in the development stage or behind closed doors.

Support for XRP

Perhaps the most notable aspect of the report is the impact of XRP, which is used to more easily leverage the Ripple DLT system's permissions and the public market for digital currency exchanges.

Recent Ripple announcements also found the company largely obscuring the role of XRP in its system. As described in the report, the Interledger protocol, released in October, seeks to create a way to trade funds between ledgers without “digital assets.”

Like Bitcoin and other digital assets, XRP is also a store of value that can be transferred between parties around the world without a central settlement counterparty. But Ripple emphasizes that XRP can also support liquidity between any two currencies and act as a bridge asset.

So Ripple claims that using XRP on the Ripple network as a bridge currency can save up to 42% in fees, and that further savings — up to 60% — are possible as usage increases and volatility decreases.

As for whether bitcoin and other blockchain platforms can offer similar services, Ripple said that is a “different story.”

Cut out the middlemen

The bulk of the report consists of an analysis by Ripple of the return on investment for banks using the Ripple network.

The company outlined the problem today: cross-border payments need to be processed on behalf of banks through a chain of intermediaries with "potential points of delay, failure and fees".

Smaller respondent banks rely on larger correspondent banks to provide liquidity for their cross-currency payments and also need to maintain liquidity in their current accounts (foreign) with correspondent banks.

But DLT-based solutions like Ripple achieve "real-time, peer-to-peer settlement", reducing these liquidity requirements. In addition, by providing end-to-end visibility, Ripple also reduces the operational costs associated with handling abnormal failures.