In today’s society, one can assume that composing, sending, receiving and interpreting e-mails is a matter of course. We do this on different devices, on the go, in meetings, at work, at home – whatever – efficiently and effortlessly. If we asked Malcolm Gladwell he would say that of course we have reached this level of competence collectively, as most of us have certainly exceeded the golden 10,000 hour rule. But there is something more fundamental: the standardization of information.
Our standard email includes From, To, CC, Bcc, Subject and Body. Each field serves a specific purpose and meets a minimum requirement to send an acceptable message. There are also norms and standards that apply within each area. For example, the email address structure includes username @ domain. The structure does not change regardless of your service provider.
So we should think about the structure of cross-border payments. If we want to ensure that the process is efficient, fast, defined and scalable, there is simply Got to be a basic level data request. Unfortunately, there is no clear standard for cross-border payments – and the shortcomings have never been more obvious.
A world without (standards)
In the area of cross-border payment solutions, a network without standardization is an inefficient and redundant network in which everything is negotiated on a bilateral basis or dictated by a central operator. If that sounds dramatic, reconsider the email analogy – at least there’s a constant feeling of palpable discord.
Historically, many different standards with varying degrees of consistency have been followed for cross-border payments. As a result, transactions that should be seamless and routine cause friction and confusion due to incompatible or incomplete data formats. According to a Bank of England speech on CPMI building blocks and focus areas to improve cross-border payments, 60% of payments require some form of manual intervention, and that intervention can cost 25-30 times the cost of processing the payment itself1. Even more fundamental is the actual definition of the finality of the settlement. Without uniform standards, every institution in a network will have different expectations, which leads to contractual complexities and different experiences with several partners.
Put simply, global payment standards are fragmented. Correcting typical network activity often requires manual intervention, adding complexity, time, inefficiency, and cost. At Ripple, however, we identified and implemented the solution that our customers are using today.
A single set of rules for a global network: RippleNet
At Ripple, we empower our members to determine the future direction of cross-border payments. The members – those RippleNet customers who sign the membership contract – are driving the development of standards to ease the path to scale and improve the payment experience on RippleNet.
When it comes to the finality of billing and data standard practices and data requirements, it means clarity of interpretation; Unity before differentiation; Guidelines instead of guesswork. RippleNet was founded on consistency, transparency and equality and is proud to be driving this next step in global interoperability.
Access & equality
All payment networks have a “payment scheme”. This effectively means that everyone has their own definition of a set of rules. The schema typically includes guidelines for conducting transactions, operational processes, technical specifications, and numerous other member obligations. On one side of the spectrum, there are many schemes that do not allow membership fees whatsoever. On the other hand, there are flimsy, inconsistent data standards that create confusion across the network.
However, RippleNet hits the sweet spot. There is a single set of rules in which the members are equally involved and to which the members adhere. More importantly, this set of rules is determined by the members themselves – they are in control. In addition, RippleNet’s governance and participation model was designed in such a way that it is inherently independent of the type of institution and location. RippleNet does not differentiate between banks and payment providers – members have direct access and an equal say in the rules for the network.
Consistency & transparency
The first step was to address the final billing issue in a peer-to-peer network to ensure that data standards are interpreted consistently across the network. To achieve this, it is of the utmost importance to make a party’s payment obligations transparent and predictable, especially at the moment when that obligation to pay is transferred from one member to another. In return, we designed a multilateral framework for what would have previously been agreed on a bilateral basis.
The second step was to take into account the vastly different data standards that can exist in a peer-to-peer network. The key is to give each member the freedom to operate according to their legal requirements while at the same time standardizing the data to bring predictability into the partnership process and consistent interoperability with domestic networks regardless of the origin and destination of the payment. Through the formal governance structure and support from Ripple, members have created a global standard for RippleNet – a minimum set of data that must be shared between members, with clear guidelines on the location, format and purpose of the data.
This clear standardization of the data enables the RippleNet network to minimize inefficiencies, redundancies and general confusion. For RippleNet customers, this simplifies deployment and further reduces operating costs.
These standards are underpinned by ISO 20022, which is steadily developing into the standard for worldwide cross-border payment transactions. In June 2020 we proudly announced that Ripple had become a member of the ISO 20022 Registration Management Group (RMG) – and the first partner to focus on Distributed Ledger Technology (DLT). Participation enables Ripple to be the voice of our members beyond the RippleNet ecosystem.
The world is approaching a new global standard and is stepping into the future. As with any challenge yet to be explored, we cannot say for sure What lies ahead, but we are excited to take the fee into the next era of cross-border payments, network interoperability, and the application of blockchain technology as a whole.
Are you interested in accompanying us on this journey? Find out more here. Check out our ISO 20022 one pager to learn more about how we’re changing the world of global payments.