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The Sea Change Ripple Labs Sees For FinTech

In the world of distributed ledgers, bitcoin may grab the lion’s share of attention and headlines. But there’s also a sea change going on in financial tech that extends to financial institutions themselves. For one thing, distributed ledgers can help transactions across virtually all currencies, notes Ripple Labs CEO and co-founder Chris Larsen, and ease of use may help speed transactions without the use of intermediaries. PYMNTS caught up with the executive and got his thoughts on everything from blockchain to how his firm intends to spend its latest multimillion dollar investment from a cadre of household tech names.


You have described Ripple as the decentralized payment technology that allows for free and instant payment in any currency anywhere in the world. How are you different from bitcoin blockchain technology?

CL: We’re born of that same technology movement — that there are possibilities now for the first time where the world has the ability to keep track of accounts, of money, of many things in multiple servers all agreeing on the current state of the ledger at the same time.

How we’re different is that we use a different method of confirmation. Bitcoin protocol uses a system known as mining, as a system of confirmation, we use a system called consensus. The consensus system doesn’t consume meaningful amounts of electricity to confirm transactions as you have in bitcoin, and importantly you can put any type of currency in the protocol.

In Ripple you can create dollar balances, euro balances, airline mile balances, so in that way it functions, what we think of as an international value rail, and we think that’s an incredibly important development in financial technology that will have a key positive impact throughout the global financial system.

Banks are some of your primary customers. What’s the value proposition for those banks, and how have they responded so far?

CL: We’re very focused on banks … and where this technology can have impact, in a way that a lot of people are focused on the consumer, for the distributed ledger technology digital asset.

We think that in this phase of the technology that really needs to attract banks and financial institutions. We describe [them] as the custodians of value. Banks are obviously different, they’re for profit organizations, they need to have a reason why they should have got this technology, and we think there are many big improvements to bank structure and revenue opportunity they can enjoy with this technology.

Among a couple of examples: Correspondent banking using distributed ledger technology as an alternative to correspondent banking.

When you look at the cost, the time, the risk of correspondent banking, distributed ledgers like Ripple, and the Ripple protocol, can solve those issues, so you can transfer value in seconds rather than days. [And that’s] without having to use an intermediary, such as a correspondent bank, which means that the bank doesn’t have to put up large amounts of capital to use as a correspondent banking system. They don’t have to take lifting fees in the correspondent banking system.

You just secured $28 million. How are you going to invest it?

CL: We’re very pleased with the participants in that round. We really look at that round as a strategic round. We’ll use it to continue to invest in the technology. We’re now over 110 people, and about 2/3 of those are engineers. That’s an incredibly valuable asset that we want to continue to build, so having the capital to invest there is important.

Among the investors we had participating were IDG Capital, who is tremendously helpful in the Chinese market; CME Group, among the largest derivatives organizations in the world; and Seagate Technology, [who is] very helpful in showing us the possibilities in treasury cash management opportunity with its global supply chain company. The strategic value of that round was probably as important as the resources that were brought in.

Are you seeing international payments evolving in the next two to three years, and what role is Ripple going to play in that revolution?

CL: I’ve been involved in FinTech now for 20 years, at E-Loan and Prosper, and now Ripple Labs.

I have to say this is the most exciting time by far in FinTech, because for the first time — and a lot of this has to do with distributed technology — we have this notion of the Internet for value.

It’s the first time you have the ability to have truly global FinTech companies, I think that’s a game changer, because the big problem you have in the world is, there’s lack of interoperability between various payment networks around the world, whether it’s U.S, system to Euro, or PayPal. That’s the big thing that’s changing now.

You now have this notion of devices having “bank accounts,” incredibly exciting stuff. From Ripple Labs’ perspective, we hope to play a role in introducing this technology as infrastructure, so that other financial companies and startups going forward can do things they just couldn’t do before because of the cost advantages and the speed advantages. That would multiply the opportunities and the amount of transactions that we’ll see taking place.

It’s an incredibly exciting time, and that’s why I think you’re seeing the tremendous brain power and capital that’s now moving into the distributed ledger opportunity.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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