Western Union Says XRP Isn't Reducing Payment Costs, Ripple Claims It Saves 50%

    Joseph Young July 15, 2018 - Posted by Joseph Young on Analysis

    In May, multi-billion dollar remittance giant Western Union confirmed the trial of Ripple. Fast forward two months, Western Union has said that XRP has failed in reducing the cost of payment on its remittance network.

    Contrasting Viewpoints of Western Union and Ripple

    Hikmet Ersek, the CEO of Western Union, has said in an interview with Fortune that the company agreed to integrate xRapid, a liquidity source for major financial institutions, only if it can substantially reduce the cost of cross-border transactions initiated by the company. 

    So far, Ersek said that xRapid has struggled in demonstrating potential to optimize the Western Union remittance network with its liquidity cost minimizing blockchain product, adding that he is not convinced Ripple can be integrated commercially at its current form.

    “We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests. The practical matter is it’s still too expensive,” Ersek said at the Economic Club of New York, emphasizing that the company will only fully and commercially integrate xRapid if Ripple can prove its solution can reduce the costs generated by the Western Union remittance network.

    In response, Asheesh Birla, Ripple’s senior vice president of product, explained that throughout the six-month trial of Western Union, the remittance company spent the majority of the time properly integrating the xRapid protocol and laying the groundwork for Ripple integration.

    Birla noted that the sample size was too small for Western Union to observe the potential impact of xRapid on a large-scale global financial network. 

    “If they were to move volume at scale, then maybe you would see something, but with 10, it’s not surprising that they’re not seeing cost savings. They do millions of transactions a month, and I’m not surprised that with 10 transactions it didn’t have earth-shattering results,” Birla said, noting that full implementation of xRapid could reduce Western Union payment costs by 50 percent.

    Western Union has clarified that the partnership between Ripple and the remittance company is for long-term strategic collaboration, reaffirming that the company does not want to end its trial of xRapid in the near future. Ersek said that in cooperation with the developers at Ripple, Western Union will continue to test the xRapid solution at a larger scale.

    Ripple CEO Says Momentum is Starting to Build

    In an interview with CNBC, Brad Garlinghouse, the CEO at Ripple, said that momentum around Ripple is starting to build and it has begun to a create a network effect in the traditional finance sector. As more banks and financial institutions participate in the network, the value of the Ripple protocol rises. 

    “It’s been an incredible 2018 for us. We’re now signing up one bank to a production contract per week. We announced that we signed the largest bank in Kuwait, the National Bank of Kuwait, so it [Ripple] continues to build momentum and the dynamic there is the network effect. The more participants, the more value in joining. So we’re seeing that momentum build,” Garlinghouse said.

    If Ripple want to be considered as a better version of SWIFT, the global banking system, it will need to add as many financial institutions as possible on its network to increase the liquidity and improve the value of its messaging system across the world’s major financial firms. 

    While firms like Western Union are not satisfied with Ripple and its blockchain-related products as of now, the Ripple development team remains confident that over time, as Ripple continues to add more participants to its network, it will be able to reduce liquidity costs of financial institutions by large margins.

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