The world is being moved into a new normal in which simple, everyday tasks and functions that are often taken for granted become increasingly cumbersome. This is not least due to the ongoing global COVID-19 pandemic, which continues to force many key operations such as finance and payments out of necessity into the digital realm. However, thanks to the increasing digitalization of our world, this new paradigm has long been on the horizon.
In theory, this shift is by no means undesirable. The interest and demand for digital payment services is increasing as people around the world increasingly need access to instant and reliable means of paying and transferring money. Unfortunately, today’s global payments don’t fully facilitate these required attributes.
Digital payments are essentially just a series of IOUs exchanged between different financial institutions. This requires institutions around the world to enter into complicated legal arrangements and pre-fund currencies with each other to reduce the counterparty risk caused by IOUs. These delays and inefficiencies, especially in such uncertain times, underpin the current correspondent banking system and underscore the need and importance of real-time payments – now.
What are real-time payments and why are they important?
Real-time payments combine speed, data and communication to make a payment in seconds. They give users instant access to their money and instant confirmation of their transaction, while ensuring near-instant final settlement.
The initial desire for real-time payments can be traced back to the rise of “instant” technology, where billions of people can now access information and experiences on the go, available through various touchpoints and channels. The snowball digitization of the world has already underscored the demand and need for more efficient payment modalities. During this global health crisis and its ensuing economic impact, millions of people are facing less stable incomes, and many companies are facing falling profits while still facing large financial obligations.
In a pre-COVID world, FIAT currencies such as the US dollar would be the best answer to instant payments. However, exchanging this currency requires personal interaction, which is strictly limited in the ongoing battle to prevent the virus from spreading. Real-time payments through dedicated and convenient payment apps offer the immediacy and reliability of FIAT currencies, allowing users to seamlessly process payments in our increasingly digital world.
The role of blockchain and digital assets in real-time payments
In order to truly make widespread real-time payments a reality, blockchain and digital asset technology must be used as a critical component to accelerate the settlement process. Blockchain technology enables companies and financial institutions to process and accept payments directly, eliminating the need for a “middle man” like SWIFT.
RippleNet is a faster, technologically advanced infrastructure layer for global payments. Based on blockchain technology, RippleNet removes the complexity that currently hinders today’s settlement process and enables cost-effective cross-border payment processing in just a few seconds.
Those financial institutions that use RippleNet also have access to their on-demand liquidity service (ODL). ODL eliminates the complex IOU infrastructure by allowing financial institutions to use the XRP ledger and digital assets as an instant settlement means to avoid pre-financing. This frees up your capital and guarantees competitive exchange rates.
As a digital asset, XRP acts as a bridge between two currencies, ensuring that payments are quickly delivered and received in the local currency of a particular area or user. By using RippleNet, the processing time for cross-border payments can be reduced from three days to just under three seconds, which makes these transactions really smooth.
The future of finance is real-time payments
Blockchain technology and digital assets like XRP can fundamentally change the entire financial industry while offering financial institutions and consumers a new, better and faster payment processing method.
The demand and eagerness to move to real-time payments among consumers is real. Look no further than the fact that mobile wallet payments are now outperforming credit card transactions in countries like Thailand, Vietnam and Indonesia.
The world as we know it is gone, but with this unexpected change, there is an opportunity to adapt and develop better, more seamless methods. Despite this global pandemic, payments should be made immediately to ensure that daily life is definitely left undisturbed.
The banks and financial institutions that are able to provide these payment methods in real time – especially now to reduce unforeseen and unpredictable problems caused by the COVID-19 pandemic – are well positioned as innovators and leaders beyond this current crisis.
Aside from the obvious benefits, providing real-time payment options is more than ever the customer service and experience that millions of people not only want but need. In a hyperconnected world where many other transactions are instantly performed at the push of a button, complex, fragmented, and legacy payment options that keep money tied up for days on end are unacceptable.
Financial institutions need to be able to provide real, usable money to their customers now – with no expected delivery or billing dates set. Those who do this will stand tall in the new world order.
Find out more about how partnering with Ripple and using our RippleNet offering can help you meet the increased demand for real-time payments by joining our network here.