Ripple’s Cost Efficiency Solutions For Banks: A Breakdown

Ripple has made the headlines for much of 2017 for all the right reasons, key among them being the many partnerships with banks and payment providers. With over 100 banks having been enrolled on RippleNet, there is no stopping Ripple. While most of us are aware that one of Ripple’s best attribute is cost-cutting, not many of us are aware of just which costs are eliminated or lowered when a bank begins to use Ripple’s platforms and the XRP token for payments.

These costs include:

• Liquidity – in the traditional model, banks are required to have nostro accounts which must be funded for transfers to go through. This ends up costing the banks a substantial amount of money. When a bank begins to use XRP for transfers, redundant liquidity costs are collapsed into a single XRP account. Using XRP saves up to 99% of related liquidity costs provided a bank has access to an XRP exchange that can support the necessary size of payment obligations. The exchange gives the bank the ability to top up its XRP balance as needed to settle payments.

• Treasury operations – the elimination of nostro accounts by the use of XRP brings down account maintenance and cash management costs by up to 74%, according to research carried out by Ripple. The costs associated with managing fiat currencies also decreases as the use of XRP reduces the number of currencies in custody.

• Currency hedging – this is the transfer of risk in a forextransaction from the transacting parties to a third party or a speculator. To avoid incurring losses, banks hedge their risk which costs them a lot of money every year. As XRP’s liquidity increases, hedging costs improve over time which benefits the banks.

• Payment operations – Ripple brings down significantly the costs for exception processing which is related to settlements as well as costs incurred from trade failures. These costs account for close to half of the total payment operations cost and they are reduced through the communication and reconciliation abilities of Ripple’s platforms.

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