Spanish banking giant Santander said its recent investment in Ripple is a strategy it promises will continue with a number of roll outs and pilots. Santander InnoVentures pumped $4m into Ripple earlier this month, bringing the technology provider's Series A funding round to $32m.
Mariano Belinky, managing partner of Santander InnoVentures, told IBTimes UK there are a number of ways the bank will participate with Ripple going forward: "Actively let's say we can act as a facilitator for them to meet other financial institutions and discuss their capabilities with them. We are evangelists if you will.
"We are soon to join their board as well. I think that will be announced in the coming days. They have created a sort of senior advisory board with a number of financial institutions and we are part of that advisory board."
He said Santander had stuck close to technology-driven use cases most relevant to its clients - the most sensible being international payments. In this respect Ripple was the obvious partner.
To this end Belinky sang Ripple's praises: "They have been around for quite a while, and they have already gone through some regulatory scrutiny, which we see as positive. I think they have established a number of very credible relationships with regulators. They are part of the faster payments initiative in the US; they are only non-financial institution participating at the Fed level, which gives us a lot of comfort. They are very serious and credible guys with a large development team and knowledge and really good banking relationships."
Fidor of Germany is the only bank to actually be "using" Ripple, having officially launched a Ripple API, but at least a dozen of them are testing the technology at this time. Santander is looking initially to connect its 10 treasuries internally around the world, to enable the bank's clients to do almost instant payments across these geographies.
Belinky said that eventually when other banks create their Ripple capabilities this will allow real time payments across banks. Other payment ledger systems competing in the space like to mention that Ripple does not do settlement finality: this still requires a Fedwire transaction to take place.
Belinky acknowledged this fact, adding: "We are not talking about replacing the whole payment infrastructure. We are looking at pieces that can be done more effectively. So let's say we do a number of payments between us and Citibank on behalf of our clients. At the end of the day, we net out and some money has to be moved from one bank to the other.
"Until we have digital money that will happen through the typical channels, which in this case will be a central bank, or an intra-bank transfer or whatever the right settlement method is. No one right now has solved that issue yet. That is when you get into the space of effectively central banks or clearing houses right."
Belinky said Santander was not interested in the secondary liquidity markets which Ripple can create, which it said was probably aimed at smaller corporate players. But the possibility of a transparent single global account is compelling.
"That's a pretty powerful product for SMEs, for clients that travel around the world, for large corporations," said Belinky. "So this is the first step of rails that allow you to create products on top in a sense. It would be very hard to do that with the current rails."
Ripple has gained some regulatory experience the hard way, tightening up its AML systems and controls in accordance with an investigation by US authorities, which led to a settlement agreement. This has now worked in Ripple's favour, making its model of systems and controls the de facto regulatory benchmark within this nascent industry.
Regarding the AML investigation Belinky said: "Remember that in the Ripple network banks act as a gateway, so all the KYC/AML, we still have to do and we will still do. We wouldn't allow non-verified users to transfer money on the network."
Ripple also came under scrutiny in a report by the core Bitcoin developer Peter Todd, which was carried out in association with distributed ledger technology standards unit R3. Todd pointed to a pathological centralisation tendency within the system because of Ripple's control over the unique node list.
Belinky said of Todd's report on Ripple: "I thought that a lot of his claims were a bit over the top. Unfortunately it was sort of propagated over and over on social media. Ripple published a very well written piece counter-arguing most of the points but no one picked that up.
Belinky said banks would not want a fully decentralised node list anyway. He added that a tier one bank is not going to trust a high latency, third tier bank in Nigeria running a node list which can be susceptible to attack.
"The people controlling the gateways are going to be the same 16 or 20 banks that control payments today and we trust each other and we know that all of our processes and services and technologies are up to par."
Belinky emphasised that Santander's strategy with Ripple to date had nothing to do with its potential membership of the R3 initiative. The latter now has 22 big banks backing its drive for a common protocol upgrade.
Santander has not joined the R3 collective as yet. "As with any big bank certain decisions are very slow and this is one that's to do with the senior innovation guys which we are not part of. I would imagine we eventually will but they are still going back and forth," said Belinky.
"And R3 is sort of protocol agnostic right. So I would imagine that once they arrive at whatever use case they want to attack, or if they arrive at a payment use case, then I would imagine that they would at least consider Ripple as one of the options to implement it."
Santander made a bullish announcement that distributed ledger technology could save the banking industry some $20bn per annum by 2020.
The report, authored with Oliver Wyman, stated: "For instance, the size of the prize for cross-border remittances ($4-6bn), securities registration and maintenance ($3-8bn) and markets processing simplification and efficiency ($7-11bn). Variances are driven by adoption rates, timing and the ability for the banks to carve out their existing infrastructure (vs. running in parallel)."
Belinky said if you think about the type of money that banks spend on back office, middle office processes and legacy systems, "I think that number is conservative." In terms of timing he added: "I think we will start seeing some initial commercial uses before 2020 - first internally, first across branches. There are a number of banks that are already testing the same ideas that we are testing. We are just being more vocal about it; we are not the only ones."