Blockchain World Wire: should Ripple worry? - 17.09.2018
“Out of the Blue”, and “quite in the shadow”, IBM recently introduced a new product called Blockchain World Wire. A cross-border payments system for financial institutions based on blockchain technology. This new global financial network will work on the Stellar network and will not only compete with the traditional Swift system, but could also become a tough competitor to Ripple’s xRapid. Review date - 17.09.2018
For many of us the Blockchain World Wire offering should be seen as one of the most secret blockchain projects which IBM describes as "the new financial rail that can simultaneously clear and settle cross-border payments in near real-time." IBM is planning to present its system at the SIBOS banking conference in Sydney, organized by SWIFT in late October.
What is Blockchain World Wire?
Blockchain World Wire, is a blockchain service for financial institutions to enable cross-border payments. This payments solution aims to offer financial institutions a means to simultaneously clear and settle payments transactions across borders in near-real time. It is thereby using the Stellar Blockchain network.
IBM Blockchain World Wire has been launched in partnership with blockchain company Stellar. Stellar provided a protocol for the payments system The Stellar protocol, which is a key part of the technical framework of Blockchain World Wire, is an open-source, decentralized protocol for transfer of digital currencies to fiat currencies, allowing cross-border transactions between any pair of currencies. This protocol promises simultaneous payment settlement and clearing for faster cross-border transactions.
The Blockchain World Wire converts fiat currencies into digital assets, for transmission across the network. According to IBM, the payments system will thereby use a stable coin as the bridge asset between two fiat currencies. IBM has already run tests of a US dollar-pegged 'stable coin' developed by the US financial services start up Stronghold, that will run on the Stellar Lumens network and will use its consensus mechanism to verify transactions. Users will be able to apply this low-volatile stable coin, next in the context of the Blockchain World Wire.
How will Blockchain World Wire work in practice?
The Blockchain World Wire product works by substituting the banking intermediaries normally needed for cross-border payments with digital assets sent over a distributed network. Blockchain World Wire thereby guarantees the simultaneous clearing and settlement of all transactions by eliminating multiple parties while processing the transactions. It will also allow end-to-end transparency and a fixed exchange fee between all the currencies.
“Sending money across borders today requires a series of intermediaries for both clearing and settlement, each adding time and cost to the process.” “With IBM Blockchain World Wire, clearing and settlement with finality happens in near real time.”IBM Site
The cross border payment realised via Blockchain World Wire, is executed using the following steps
The first step is that two financial institutions transacting mutually will agree to use a stable coin (a central bank digital currency or other digital assets) as the bridge asset between any two fiat currencies. The digital asset facilitates the trade and define the settlement instructions. The financial institutions will thereby use their existing payments systems by connecting them seamlessly to Blockchain World Wire through a set of APIs.
Effectively, using World Wire APIs plugged into banks' existing systems, the first fiat currency is exchanged/converted into a digital asset at bank A. This is the second step.
Blockchain World Wire then transmitted that digital currency to bank B, where it is simultaneously converted into the second fiat currency, completing the transaction. All transaction details are thereby recorded onto an immutable blockchain for clearing.
"What we really want to do is enable all sorts of digital transactional networks to settle their transactions with digital fiat currency on the same blockchain networks." Jesse Lund, IBM's head of blockchain services for financial institutions
But what may Blockchain World Wire bring?
The new Blockchain World Wire service may "revolutionize cross-border payments" as compared to the current international payments systems, according to IBM, “specifically addressing the two attributes that make current cross-border payment systems cumbersome — time and cost”.
Integrating with existing payment systems in financial institutions Blockchain World Wire could “replace costly non-transparency with affordable transparency”. The new system would be able to streamline the payments processes thanks to simultaneous clearing and settlement, thereby firmly reducing transaction costs. It will also contribute to increased efficiency triggered by end-to-end transparency. It will further open the door to new markets and operations, including Open Account trade transactions.
"With IBM Blockchain World Wire, clearing and settlement with finality happens in near real-time. The solution uses digital assets to settle transactions — serving as an agreed-upon store of value exchanged between parties — as well as integrating payment instruction messages. It all means funds can now be transferred at a fraction of the cost and time of traditional correspondent banking." IBM Website
Growing competition with SWIFT and Ripple
Similar to other blockchain-based payment networks such as Ripple, Blockchain World Wire attempts to “get rid of” banking intermediaries that add complexity and cost to the traditional international payments systems”.
Blockchain World Wire might compete with the traditional old-world SWIFT payment system, the organizer of the SIBOS event in Sydney, where IBM will show its Blockchain World Wire demo. But with its move into blockchain payments, the main competition for this service is not from traditional payment systems it seeks to replace, but instead from other blockchain-based payments services that are already being used by the financial sector.
The most notable candidate here is Ripple, which already offers several similar products aimed at financial institutions, such as blockchain-based xCurrent and xRapid transaction solution. These have already been seeing increasing usage globally. Companies around the world that are currently testing and using xRapid include Moneygram, IDT, Western Union, Cambridge Global Payments, Viamericas, Mercury FX, Currencies Direct, SBI Virtual Currencies, Cuallix, and Zip Remit.
XRP versus Lumens XML
Blockchain World Wire’s description seems to be quite similar to Ripple’s product known as xRapid. The centralisation of the XRP cryptocurrency is however still a critical point for many tech companies and also for banks which wish making use of the Ripple network. Stellar Lumens XLM, the cryptocurrency of the Stellar network, is aimed to be used as the bridge currency of the Blockchain Worlds Wire. But in fact Blockchain World Wire will support any cryptocurrency not only Ripple’s XRP.
While Ripple is a commercial company Stellar is a non-profit organisation, so less costly. And as Lumens XML is much more decentralised compared to Ripple’s XRP, making it much more attractive this may trigger financial institutions to opt for IBM’s Blockchain World Wire. This given its much broader client base.
Ripple’s advantage is that it is already operational for a while. The Blockchain World Wire product is however not ready for launch yet. And IBM has not revealed all the technical details giving a number of puzzling pieces and is still away from official launch. In the meantime that may give Ripple time to fasten seat bells and make their offering more competitive. And that is good for the market!.
Published: 17 September 2018
Author: Carlo R.W. De Meijer
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