Distributed ledger technology firm R3 and 12 of its consortium banks are trialing Ripple's native digital asset, XRP, to scale liquidity and reduce the costs and inefficiencies of cross-border payments.
The R3 member banks involved in the trial include Barclays, BMO Financial Group, CIBC, Intesa Sanpaolo, Macquarie Group, National Australia Bank (NAB), Natixis, Nordea, Royal Bank of Canada (RBC), Santander, Scotiabank, and Westpac Banking Corporation.
Rather than relying on nostro accounts to hold various currencies around the world, banks can enable real-time value exchange by using an independent digital asset.
This blockchain-inspired alternative to correspondent banking provides on-demand liquidity and dramatically reduces associated costs, said a statement.
David Rutter, CEO of R3, said of the trial with Ripple: "The tradition of holding numerous currencies across multiple accounts in different countries is costly and inefficient. This is a legacy issue from a time when the technology did not exist to offer a viable alternative; however, digital assets and distributed ledgers can now enable real-time exchange of currencies between parties anywhere in the world without the need for a third-party intermediary.
"This prototype paves the way for a major overhaul of how banks process and settle cross border payments."
Independent digital assets enable global reach without the liabilities of those issued by banks themselves. Of the world's most popular digital assets, XRP boasts the fastest settlement speed, settling in about five seconds or less. The trial demonstrates that Ripple can enable banks to make markets for fiat currencies using XRP and then complete authenticated payments without multiple nostro accounts.
In addition to benefitting from liquidity efficiencies and nostro consolidation, banks can save up to 60% in payment processing costs with Ripple's solution and XRP. This cost-savings frees up capital to generate revenue opportunities, including new product offerings for high-volume, low-value payments and access to new corridors.
Andrew Irvine, head of Canadian Commercial Banking and Partnerships, BMO Bank of Montreal, said:"This technology will be a catalyst in reducing complexity, streamlining processes and ultimately lowering the significant costs associated with interbank cross-border payments, which will benefit both banks and their customers in the years ahead."
Stefano Favale, head of Global Transaction Banking, Intesa Sanpaolo, added: "We were really glad to take part in the test team and excited about exploring the Ripple solution and its technical implications in depth. We found the exercise very interesting and we deem that the next challenge is to understand its full potential impact, especially in regulatory terms. The contribution of central banks and regulators to supervise cryptocurrencies together with a higher focus on relevant clearing and settlement is the way to give confidence to the market, reducing the liquidity absorption for the banks and reducing systemic risks."