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Did we solve a payments problem that no longer exists?

I’ve written before about Bitcoin and so this time I want to move away from crypto currencies towards some of the underlying technology; specifically technology being built by Ripple Labs.  Ripple is entirely focused on building a protocol (the Ripple protocol) which aims to make transacting as easy as emailing.  It is underpinned by a currency (XRP) but unlike Bitcoin, the purpose of XRP seems more to aid efficient real world currency transactions rather than being a tradable asset in its own right.  To learn more, I suggest you read their great ‘Primer.’ They use the analogy of early email solutions to illustrate the inefficiencies in today’s payments world; inefficiencies they are trying to remove.  In the beginning there were a bunch of providers with email services - e.g. Compuserve and AOL.  They were isolated and couldn’t talk to each other, just like today’s national clearing mechanisms.  Along came SMTP as the universal email protocol and those isolated services were able to talk to each other using a common language.  To complete the analogy, Ripple is saying that the world’s current payment infrastructures are a lot like the early days of email.  And now with the Ripple protocol, we now have the financial equivalent of SMTP in our hands.  The potential result being (nearly) instant payments, globally and cheaply.  So, a global, distributed clearing and settlement network to replace all the current currency / country linked infrastructures that we have today.  That’s quite something.

So, how does this link back to the title of my blog?  Well, if we look at one of the arguments behind the Euro and SEPA, they were established to drive efficiencies across the single market of the EU.  Before the introduction of the Euro, different currencies caused significant challenges for cross-border trade.  The answer to this was to create a single currency and then a single payments scheme to bring harmonisation across the Eurozone and the end of cross border transactions within the SEPA zone.  But as we enter 2015, we could arguably achieve the same and more with these emerging technologies.  It could have given us that single settlement mechanism and furthermore, instant settlement at very low cost.  Yes, we would all still have our own currencies and so FX would still be required.  But, not only have there been strong arguments since 2008 that maintaining individual currencies may not have been a bad thing (you can’t have currency union without fiscal union…), but the Ripple protocol encourages competition amongst so called currency ‘market makers’ to keep FX spread down.

It seems that for Europe, a new physical currency was deemed a necessary underpinning to an efficient trading/payments landscape.  As we leave behind the year in which SEPA became a reality, I can’t help but wonder whether we would have made the same decisions if the technologies we see emerging today, had been around at the turn of the century.


Comments: (2)

Barry Kislingbury
Barry Kislingbury - ACI Worldwide - London 19 January, 2015, 15:47Be the first to give this comment the thumbs up 0 likes

Ripple may well offer an alternative global solution, and it would be nice for once for a real global standard to emerge, but will the ever so conservative finance industry adopt such a novel idea?  ISO 20022 is tagged as such a global standard, but unfortunately the majority of modern payments systems adopting ISO 20022 seem to be using the standard in a slightly different manner, we will never learn?  There is hope that the ISO 20022 RMG may look into this, so crossed fingers.  Also, given SEPA is just about complete, the world has moved on and we are now all talking real time or immediate payments with many countries doing or building these new infrastructures now.  This is why the EPC is concerned that if all Euro countries build their own real time payments system using ISO 20022 differently, we could lose the benefits of SEPA before it even beds down.


James Piggot
James Piggot - Finastra - London 20 January, 2015, 10:42Be the first to give this comment the thumbs up 0 likes

As you say Barry the financial industry may be slow/reluctant to adopt this for security and profitability reasons. But what happens if leaner faster moving startups do take this up and provide services that the general public find attractive, would they bypass the banks and even the regulators but at a larger scale?

It is tempting, what with bitcoin not exactly taking the world by storm, to think the current status quo will last for a while. But past experience tells us this is how internet disruptions happen, some false starts and maybe the odd failure before suddenly the true online alternative emerges and becomes the established player while others are left scratching their heads and wondering what hit them.


Andrew Owens

Andrew Owens

SVP - Enterprise Payments

SunGard AvantGard

Member since

05 Feb 2013



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Payments strategies 2015-2020-2030


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