XRP, the native cryptocurrency of the XRP Ledger, has garnered significant interest from banks and financial institutions. As a digital asset specifically designed for fast, low-cost cross-border payments, XRP has clear utility for facilitating transactions between banks. However, the degree of actual banking adoption and integration of XRP remains a matter of some debate.
In the opening section of this article, we will provide quick answers to some key questions around banks and XRP:
– How many banks currently use XRP? According to Ripple, there are over 300 financial institutions on RippleNet, Ripple’s global payments network that leverages XRP for liquidity. However, the number of banks actually using XRP on a regular basis is likely much lower.
– What major banks are backing XRP? Some of the most notable banking partners invested in Ripple include Santander, Standard Chartered, and SBI Holdings. However, the likes of JPMorgan and Citi have not adopted XRP.
– Is XRP used for interbank settlements? Not at any significant scale yet. Some banks have piloted XRP for settlement of cross-border payments, but widespread adoption is still lacking.
– What is Ripple’s relationship with banks? Ripple positions its enterprise blockchain solutions as a way for banks and financial institutions to improve payments. Some banks have partnered closely with Ripple, investing capital and helping develop its payment networks.
Now that we have provided some quick background, let’s do a deeper dive into the details around XRP adoption and banking.
Current State of XRP Adoption by Banks
Although Ripple touts hundreds of partnerships, the number of banks actually utilizing XRP for liquidity and settlement remains limited as of late 2022. Most of Ripple’s banking clients are focused on RippleNet’s messaging and other enterprise products, not XRP per se.
According to industry observers, “only a handful” of banks use XRP, most commonly for arbitrage between currency pairs or pilot programs for cross-border settlement. The National Bank of Egypt and Brazil’s Banco Rendimento are among the few banks publicly known for ongoing XRP adoption. But for the most part, XRP use cases remain experimental and not production-level.
Industry analyst AMBCrypto estimates that about dozen banks are implementing xRapid, the XRP liquidity product. Banks face regulatory uncertainty and technology integration challenges when adopting any cryptocurrency. While Ripple positions XRP as the best digital asset for global payments, most banks remain cautious about extensive XRP adoption.
So in summary, while Ripple has made significant inroads with financial institutions through RippleNet, actual XRP adoption lags behind. The number of banks using XRP in any capacity likely numbers in the dozens, not hundreds. No major global bank uses XRP at scale as of late 2022.
Banks Invested in RippleNet and XRP Development
Although XRP adoption is still minimal, a variety of banks have partnered with Ripple to pilot and develop uses cases for XRP and RippleNet:
Santander: This major Spanish bank was one of the first to use xRapid for cross-border payments back in 2018. However, Santander has not pursued extensive XRP adoption. It remains focused on One Pay FX, a mobile app for retail cross-border payments also developed with Ripple.
Standard Chartered: The UK bank ran a pilot in 2019 using XRP for dollar-to-peso transactions resulting in 30% transaction savings. Standard Chartered remains involved in RippleNet but has not pursued production XRP use.
SBI Holdings: This Japanese financial giant has been a lead Ripple investor and user, staking millions of dollars worth of XRP. SBI also operates MoneyTap, a retail payments app using XRP for settlement.
Banco Rendimento: A small Brazilian bank using XRP to settle USD transactions and aiming to capture new payment corridors based on XRP liquidity. One of the few banks using XRP regularly.
ECB: The European Central Bank tested xRapid in 2019 to better understand XRP’s mechanics and scope potential benefits. But the ECB has not integrated XRP into its wider payments infrastructure.
PNC Bank: An early xRapid pilot participant, but PNC has since stepped back from XRP and not pursued ongoing use cases. The bank remains cautious of regulatory uncertainty around cryptocurrencies.
So in summary, while a variety of banks have participated in XRP pilots and proof-of-concepts, most are not using XRP regularly at a production scale. Only a few smaller banks are relying on XRP for liquidity and settlement regularly as of late 2022. But continued bursts of XRP innovation indicate banks remain interested in its potential.
XRP for Interbank Settlements
One of the most compelling use cases for XRP is facilitating interbank settlements – the exchange of value between two financial institutions to settle outstanding transactions. Moving settlement layers to blockchain improves traceability and can lower costs.
However, XRP is not used extensively for interbank settlements as of late 2022. Some of the pilots and tests of xRapid were focused on interbank use cases, but most did not progress to production. XRP lacks critical mass for interbank settlement compared to incumbent networks like SWIFT.
SWIFT settles trillions in interbank payments daily, while XRP handles a small fraction. The average daily transaction volume of XRP was around $8 billion as of Q3 2022, shared across all use cases. XRP is still rarely used for banks’ high-value, high-volume interbank transactions.
Certain regional payment corridors and currency pairs do see banks pilot XRP for interbank settlements though. The most common examples are:
– USD-MXN corridors between the U.S. and Mexico
– EUR-PHP between European and Philippine banks
– USD-INR flows between India and the U.S.
But these XRP settlement flows have not scaled significantly. No major global corridor relies on XRP for interbank settlement mainstays as of late 2022. XRP remains an experimental option limited to specific currency pairs where banks are testing its speed and cost savings versus alternatives.
SWIFT, CBDCs, and Alternatives to XRP
The lack of XRP adoption for interbank use cases relates to its small market share versus other settlement options for banks:
SWIFT has a 4 decade head start as the underpinning of international banking messaging and settlement. Increasing speed with SWIFT gpi and exploring blockchain integrations makes SWIFT hard to displace.
Central Bank Digital Currencies (CBDCs) are looming as official digital money backed by central banks. CBDCs could enable near instant interbank settlement and cut reliance on intermediaries. China’s digital yuan pilot is the furthest along.
Federally-Backed Stablecoins are another option suggested by the Federal Reserve and European Central Bank. Stablecoins pegged to fiat could provide a neutral medium for interbank settlement.
Enterprise DLT like Hyperledger offers private settlement layers. Banks can get benefits of distributed ledgers without using a speculative asset like XRP.
So in summary, XRP is one of many options for interbank settlement. But it remains held back by SWIFT’s dominance, as competitors like CBDCs and enterprise blockchain gain steam. XRP must reach critical mass to be a compelling interbank bridge currency.
Regulatory Status of XRP and Banks
A major barrier to XRP adoption by banks is its uncertain regulatory status – in particular, whether XRP is considered an unregistered security. The SEC filed a lawsuit against Ripple alleging XRP was sold as an unauthorized security. This lawsuit remains unresolved as of late 2022.
The uncertain regulatory status makes banks hesitant to adopt XRP, as they face strict rules around cryptocurrency use. Prudent financial institutions will wait for regulatory clarity before pursuing XRP services.
Foreign banks have more flexibility to experiment with XRP, as regulations differ across jurisdictions. In the UK or Singapore for example, the regulatory regime is more welcoming to crypto. This explains why we see pockets of XRP adoption in regions like Southeast Asia, but cautious exploration in the United States.
Interestingly, the US Comptroller of Currency (OCC) has stated banks can use public blockchains and stablecoins for settlement activities. But the OCC has not made similar allowances for XRP. So there are clearly complex nuances based on each currency’s attributes.
No major economy has explicitly deemed XRP a currency or commodity. XRP exists in a grey zone until regulators issue clearer guidance. This will likely dampen, but not eliminate, banking activity with XRP until there is resolution.
Bank Development on RippleNet and XRP Initiatives
While the above sections focused on XRP adoption, it’s important to also highlight the work banks have undertaken with Ripple to improve global payments:
– Banks have partnered with Ripple to build payment and liquidity corridors on RippleNet leveraging XRP and Ripple’s enterprise blockchain technology. These allow faster cross-border flows between financial institutions.
– Ripple claims over 300 banks, payment providers, and remittance companies use RippleNet technology and infrastructure. So banks derive benefits even without direct XRP use.
– Initiatives like Ripple’s University Blockchain Research Initiative (UBRI) engage leading universities to research XRP and blockchain payment use cases. Banks help guide this research to explore pragmatic improvements.
– Major banks like Santander have worked closely with Ripple to develop consumer remittance solutions like One Pay FX that provide real-world platforms to implement innovations with XRP and make global payments more accessible.
– Banks have participated in developing the XRP Ledger as part of RippleX to help advance base-layer technology and features needed to power financial use cases on a shared blockchain foundation.
So in summary, banks have been critical partners in Ripple’s mission to modernize payments. They provide guidance, technical insight, and real-world transaction expertise based on their decades of experience. This bank involvement has spurred meaningful progress, even if XRP use itself remains limited.
Conclusion
In conclusion, the number of banks using XRP remains limited to likely a few dozen as of late 2022, but Ripple has succeeded in gaining banks’ interest. A variety of financial institutions have piloted XRP, invested R&D dollars, and helped develop related payment products and services leveraging Ripple’s blockchain technology.
XRP is still in the early stages of being proven as a settlement instrument relative to options like CBDCs. But Ripple’s partnerships lay the foundation for XRP to potentially capture value as an intermediary currency for certain payment corridors and use cases. Real-world transaction volume and settlement flows between banks are ultimately what will determine XRP’s long-term positioning.
Clarifying XRP’s regulatory standing will be a pivotal step in giving banks the confidence to deploy XRP operationally. Banks desire regulatory surety before allocating significant technology resources or holdings to any cryptocurrency. How the SEC case plays out and the ensuing regulatory guidance will shape XRP’s viability as a settlement tool within mainstream finance.
