The U.S. Faster Payments Council (FPC) has recognized Ripple among companies like Visa and Mastercard set to compete for dominance in currency conversion for digital assets.
This acknowledgment was part of the most recent insights from the FPC Work Groups investigating ways to enhance the speed of real-time payments, with a particular focus on reducing the 2-3 day settlement time to instant.
The FPC #DigitalAssets Work Group has just published its next blog on “Where Worlds Collide: #CurrencyConversion for #CrossBorder and Digital Assets.” Read the post here: https://t.co/43bLGKUhiX pic.twitter.com/gh7Umy8tlE
— Faster Payments Council (@Faster_Payments) June 3, 2024
Currently, efforts to achieve real-time payments include advancements in cross-border payment solutions and digital assets. However, FPC identified currency conversion as a significant challenge for cross-border payments and digital assets.
Currency Conversion Challenges
Currency exchange, the process of converting one currency into another at an agreed exchange rate, usually involves a third-party service.
For cross-border payments, a significant aspect of the payment process is the foreign exchange component. This often involves a network of correspondent banks, settlement processes within central banks, and the parties initiating and receiving the payment.
Moreover, the report highlighted that achieving immediate fund availability in cross-border payments is further complicated by manual operations and compliance requirements.
Regarding digital assets, the challenge extends beyond just currency conversion. The infrastructure must support not only the exchange of fiat currencies but also the conversion rates between different cryptocurrencies.
Meanwhile, FPC recognized distributed ledger technology (DLT) as a potential solution to improve transaction speed. Additionally, it noted that systems that support multi-currency settlements and real-time conversion rates are crucial for both cross-border and digital asset transactions.
Furthermore, the council recognized that while cross-border payments and digital asset transactions share similar business functions, currency conversion mechanics may differ.
Key technological components include APIs for real-time exchange rates and payment tracking, AI, and machine learning for data analysis and risk management. Also, digital wallets and DLT will provide platforms for managing transactions and liquidity.
Ripple, Visa, and Mastercard to Compete for Dominance in Digital Asset Conversion
While digital asset currency conversion is projected to follow the FX model, it would require a trusted infrastructure. Specifically, FPC suggested that just as traditional sources like Bloomberg and Reuters provide FX rates for cross-border currency conversions, a similar infrastructure for digital asset conversions will emerge, potentially on DLT.
In this context, the Faster Payments Council recognized Ripple as one of the companies that could significantly contribute to providing the necessary technology and platform for these conversions. Moreover, it stated Ripple will rival Visa and Mastercard for dominance in this market.
Ripple’s involvement would likely be due to its existing blockchain-based payment solutions facilitating quick and cost-effective cross-border transactions.
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