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Ripple tries to diversify as it faces headwinds from the banks

Ripple has created one of the most valuable cryptocurrencies. Its digital tokens, known as XRP, have a total value of almost $30 billion, behind only bitcoin and Ether.

cross-border B2B payments

Ripple tries to diversify as it faces headwinds from the banks

But, eight years after launch, Ripple is still trying to find compelling uses for the blockchain technology underpinning its currency that would justify such a high figure.

Now, in an effort to draw more users, it has struck out in a new direction: to try to become the Amazon of the cryptocurrency world, using its platform to support activities far beyond the original cross-border payments system it hoped to build.

The popularity of XRP has driven the value of its coin up. Ripple is also still sitting on about 55% of the total supply, worth around $16 billion at current prices — far overshadowing its underlying technology business.

As a result, the value of the company is tied “mainly to the XRP, with an option on a small software business”, said one former executive.

Winning over the banks

Ripple’s original aim, to build a more efficient, wholesale cross-border payment system, has made slow headway with the banks that were the original target for the technology. Santander invested in Ripple in 2015, and recently chose not to use XRP at the heart of an ambitious new international payment network — a sign that even some of Ripple’s strongest backers do not yet see a use for its core technology.

Cedric Menager, the network’s chief executive, suggested that XRP was not actively traded in enough markets yet to support Santander’s needs. The bank wanted to “give the best [user experience] as quickly as possible and also operate in as many currencies and corridors as possible from the beginning,” he said.

Ripple said that Santander was still using some of its software in the payments service and was “one of our largest and most important customers”. The company also claims a high growth rate for the XRP facility at the heart of its system, though it does not provide absolute figures, and also says many banks are using some elements of its software.

Many observers say Ripple was always facing an uphill battle in trying to win over the banks, which have already invested heavily in current technology and benefit from the current system.

Scott Garlinghouse, Ripple CEO, blames uncertainty in the US over whether XRP tokens should be regulated as securities for discouraging more companies from using Ripple’s blockchain. He and the company also face a lawsuit over claims they sold unregistered securities.

Cross Border opportunity

Ripple has subsequently drawn on its main asset — its cryptocurrency reserves — to try to draw more users to its technology as it looks beyond the banks. In cross-border payments, the company’s focus has turned to remittances, where customers face high fees to send relatively small amounts through money transfer companies.

Last year, Ripple used some of its cash to buy a stake in MoneyGram, as well as Bitso, a Latin American cryptocurrency exchange. The investments helped to put its technology at the centre of about 7% of all remittances from the US to Mexico in June.

But the success only represents one market, and has come at a cost. Moneygram’s filings show that Ripple handed it $31 million in “market development fees” to encourage use of XRP in the first half of this year — payments that accounted for 60% of Moneygram’s operating profit.

 The Amazon of payments

Ripple has also handed out hundreds of millions of dollars to stimulate wider uses of blockchain technology. A year ago, it said it had distributed the equivalent of more than $500 million — much of it in the form of XRP — through its Xpring fund, as a way to seed more new applications that use blockchain technology and might, indirectly, benefit Ripple in the long run.

That included handing $260 million worth of cryptocurrency to Coil, a start-up building a decentralised online media marketplace where creators can sell directly to consumers.

Most of the money was earmarked as grants to attract developers and creators to join Coil’s market, said Stefan Thomas, the company’s chief executive and a former Ripple chief technology officer. A year after launching a blogging platform, however, Coil seems to be generating little in return for the handouts.

Ethan Beard, who runs Ripple’s developer efforts after once holding the same position at Facebook, said the company had moved from “writing cheques to writing code”.

According to Garlinghouse, this latest effort — which he described as an extension of the company’s strategy, rather than a full shift in direction, will turn Ripple into a broader blockchain platform in much the way Amazon has become a platform for a wide range of ecommerce.

“Amazon started as a bookseller and just sold books. We happen to have started with payments,” he said. “Two years from now, you’re going to find that Ripple is to payments as Amazon was to books.”

Unlike Amazon, however, Ripple has not yet produced a hit with its first application, leaving it without a big base of active users to sell other services to. Also, it has a controversial reputation in many parts of the cryptocurrency world, where its attempts to build bridges with the existing financial system clash with the radically anti-establishment motivations of many developers.

In one sign that some of the most potentially disruptive new applications are not being attracted to its platform, a wave of experimentation in decentralised financial applications — known as DeFi — has been drawn instead to the Ethereum blockchain.

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