- The U.S. Department of Consumer Protection in the financial sector has drawn attention to the growing trends in the market for cross-border payments, identifying Ripple as one of them.
- However, the authority considers it unlikely in the short to medium term that new technologies such as Ripple’s will replace the correspondent banking network.
Ripple’s technology for cross-border payments has attracted the interest of the United States Consumer Financial Protection Bureau (CFPB), an agency of the United States government responsible for consumer protection in the financial sector. In a publication with the title “Remittance Transfers under the Electronic Fund Transfer Act (Regulation E)”, the authority states that it has been monitoring the market for remittance transfers for quite some time.
The consumer protection agency points to three major trends in the market for remittances. First, there is the persistent growth and increasing functionality of the “global payments innovation product” (gpi) of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). According to the CFPB, this will provide sending institutions with more advance information for cross-border credit transfers. At the same time, SWIFT aims to expand the capacity to support these payments.
Second, the CFPB has also observed the continued growth of fin-tech companies that are not banks and are expanding their reach through new partnerships and relationships with banks. In its third trend, the CFPB explicitly mentions the “continued growth and expanding partnerships of virtual currency companies, such as Ripple, which offer both a payments messaging platform to support cross-border money transfers as well as a virtual currency, XRP, which can be used to effect settlement of those transfers”.
CFPB addresses both advantages and problems of Ripple
As the Consumer Protection Agency states, the new technologies offer ways to make cross-border payments both predictable in terms of charges and cheaper. However, the CFPB also points out the limitations of the technology, for example Ripple:
All of the developments apply elements of a closed network payment system to cross-border money transfers sent by banks and credit unions. As discussed in part II above, in a closed network payment system, a single entity generally exerts a high degree of end-to-end control over a transaction.
At the same time, the Authority notes that this could lead to greater standardisation and facilitation, allowing sending institutions to know exactly what exchange rates and third party charges are applied.
The Bureau also believes that expanded adoption of SWIFT’s gpi product or Ripple’s suite of products could similarly allow banks and credit unions to know the exact final amount that recipients of remittance transfers will receive before they are sent.
Based on market monitoring and the experience of the authority, as well as feedback from banks, credit unions and other associations, it also states that, despite the benefits, there will in all likelihood be no change in the system for cross-border payments in the near future:
[…] that it did not believe that it was likely in the short-to-medium term that the developments described above would be able to fully eliminate reliance on the correspondent banking network as the predominant method for banks and credit unions to send remittance transfers.
The head of Ripple’s legal department, Stuart Alderoty, referred to the United States Consumer Financial Protection Bureau’s report and said the agency’s assessment of the predictability of fees for Ripple’s services was correct.
The Consumer Financial Protection Bureau believes that Ripple's products could allow banks and credit unions to know the exact final amount that recipients of remittances will receive before they are sent. So do we!https://t.co/GTVQYf3wAM
— Stuart Alderoty (@s_alderoty) May 16, 2020