Ripple rounded off the year nicely with additional funding, a new protocol and an endorsement from Microsoft

Distributed financial technology firm Ripple believes a protocol upgrade for cross-border payments will have the knock-on effect of making blockchain optimisation smoother in other areas of finance such as post trade securities settlements.

Ripple is on a roll. Back in October, Santander InnoVentures added $4m (£2.7m, €3.7m) to the technology provider's Series A funding round, bringing it to $32m. That month also saw the release of the firm's open source Interledger Protocol (ILP). And most recently, Microsoft has said it wants to incorporate ILP into its Azure Blockchain as a Service offering for enterprise.

Chris Larsen, CEO and co-founder of Ripple, maintains that payments are the best point of entry for distributed ledger. He also looks ahead to cooperation with others looking at post trade and securities settlements and open common standards.

I think right now it's definitely time to be in a mode of co-operation across the board
- Chris Larsen

He told IBTimes UK: "There's a lot of opportunities here but payments are far and away job number one. We have looked a lot at securities, but it's the cross-border payments that are going to have the biggest impact. And in fact if you can impact payments first, that will actually aid in securities settlement innovations. It's part and parcel.

"If we are building technology on the payments side, there's opportunities where that can then be used. Most of our tech is open source and the stuff that is close to us we licence to partners and customers."

"I think there are lots of opportunities for people that are looking at the securities space, where we could work together on open standards like ILP for example. Or in the licensing components of the software we have. I think right now it's definitely time to be in a mode of co-operation across the board, whether that be with banks, whether that be with software providers, system integrators, and even other distributed ledger enterprises, like R3 for example."


R3 CEV is a technology company looking to create common standards for blockchains, beginning with banks looking to make the post trade and settlement arena more efficient. The R3 group is headed up by Wall Street veteran David Rutter and includes the likes of Richard Gendal Brown, Tim Swanson and Ian Grigg. It has so far signed up 40-plus big banks.

Chris Larsen, CEO and co-founder of Ripple

"We are impressed by the sheer number of institutions that [David Rutter] has brought together," said Larsen. "They are focused, it looks, initially also on the securities space – Dave himself is an expert in capital markets and securities.

"We totally respect what they are trying to do and we have had some good discussions. I think there is ways we can work together and help each other, since we are kind of focused on different components of where the tech is going."

Microsoft Azure

Announcing Ripple's ILP will be added to the Azure cloud offering, Marley Grey, director of technology and financial services at Microsoft, noted in a blog post that he looked forward to new and novel use cases for the technology. This is interesting; unlike Ethereum, which was added to Azure in November, Ripple is past the sandboxing stage.

Larsen said: "Our hope would be, when you see organisations looking at it and using it, it's not just experimentation, companies directly applying it to their customers and trying to solve real problems and pain points.

"We think intra-bank payments is a good place for banks to start out understanding it, between their various branches. For example, there's Santander Spain and there's a Santander UK. You are dealing with two different currencies and one institution, but you still have all the friction points of correspondent banking, even within those intra-bank transfers. That's a very logical place for banks to start.

"Another would be corporations using global supply chains. Corporations that do business in multiple countries in some cases are tying up billions of pounds of value just to anticipate future cross border payments because the system is so slow and expensive and prone to failure. That sort of pre-funding need is a big burden on global supply chains for corporations and banks. We think that's also a great use case – not theoretically but actually things that can be solved right now."

Pathfinder liquidity

Another clever part of Ripple is the way it creates additional liquidity within the correspondent banking world using what it calls "pathfinder". Larsen said in some instances, it will be easier for banks that have FX desks to handle their own market making, depending on the situation.

What's really going on here is this notion of liquidity now getting where and when it's needed, rather than being sort of stuck
- Chris Larsen

He said: "The key thing is that this technology should be flexible and open enough where each institution can make that choice and they might even make it quarter by quarter.

"If they are strong in a particular quarter, maybe they want to maintain their market making there, and if they are not competitive they can get better prices by using other people's liquidity.

"What's really going on here is this notion of liquidity now getting where and when it's needed, rather than being sort of stuck. That's where you really get the effect of the netting: rather than everybody having their pre-fund, their own payments in each country and doing it over and over again, you are able to say, look there's this demand here, there's this supply here. That's where the netting gets very powerful."

Critics have made the point that the only thing that will produce settlement finality within the international financial system is clear balances at the Bank of England, the European Central Bank or the Fed. While Ripple does a great job of moving assets, at the end of day one it has to net out and do a Fedwire transaction to finish a payment.

Crossing borders and financial inclusion

Larsen said: "If it's a bank which operates within some jurisdiction that has a central bank, ordinarily the last mile will depend on the mechanism that exists in that jurisdiction, so it just depends on the jurisdiction – the UK, Mexico for example, the US is a little bit different, but is working very hard towards faster payments.

"I think what we are really trying to address is that use case on correspondent banking – what happens between the institutions. The other parts we think already have solutions and central banks tend to have these five criteria – faster, lower cost, more inclusive, cross border and access to the smallest institutions. That's the five objectives the Fed has, for example, in their faster payments initiative.

"The sticking part tends to be on the cross-border part. And the more inclusion part is tricky unless you can change the cross-border infrastructure. So that's kind of what we are aiming at.

"I think what we see right now is cross-border payments that leads to greater inclusion and we can tackle two of those five objectives. And I think most jurisdictions would point to these, saying these are the critical things we need to implement."