Ripple's cryptocurrency product goes live for the first time with three financial firms

Key Points
  • Ripple said xRapid, which uses cryptocurrency XRP to carry out international transactions, is now commercially available.
  • The development marks the first time XRP will be used in commercial application by financial services firms.
  • Chief Executive Brad Garlinghouse was set to announce the news at Ripple's annual Swell conference.
Brad Garlinghouse, chief executive officer of Ripple Labs Inc.
David Paul Morris | Bloomberg | Getty Images

Ripple's cryptocurrency product for cross-border payments will go live for the first time with three financial institutions.

The San-Francisco-based financial technology firm said Monday that xRapid, which uses the cryptocurrency XRP to carry out international transactions in "a matter of minutes," is now commercially available.

It will be used by payment providers Mercury FX and Cuallix, as well as cooperative financial firm Catalyst Corporate Federal Credit Union, Ripple said. Chief Executive Brad Garlinghouse was set to announce the news at the start-up's annual Swell conference, a two-day event attended by industry representatives, on Monday.

"I'm really excited to bring the product into the market at a time when there is a lot of skeptcism about digital assets and their real use case," Asheesh Birla, Ripple's senior vice president of product, told CNBC.

"Here's something where we're finding a ton of value and providing a ton of value to our customers using digital assets to move money more efficiently."

Ripple says there is a distinction between it, a private company, and XRP, which is the native digital currency of an open source network known as the XRP Ledger. There has often been confusion between the two.

Of the 100 billion XRP tokens in existence, Ripple owns 60 percent. But the company has kept 55 billion of the tokens locked up in an escrow account, to "create certainty of XRP supply at any given time." That means it only has access to 13 percent of the digital currency, according to Ripple.

CFTC Chair Chris Giancarlo on the future of crypto
CFTC Chair Chris Giancarlo on the future of crypto

The development marks the first time XRP will be used in commercial application by financial services firms, and is seen as a critical milestone in Ripple's bid to make cryptocurrencies and the underlying blockchain technology a part of the financial mainstream. Blockchain refers to the decentralized ledger that logs transactions and other information across a distributed network of computers.

The company's business model also relies on deals with financial institutions, providing it with a core source of revenue.

Ripple had been testing the cryptocurrency product with Cuallix, Mercury FX and a number of other payment companies, including money transfer giants Western Union and MoneyGram.

But so far the start-up has not publicly announced any banks piloting xRapid, and has said that big lenders are unlikely to be the first to test or use it.

"Banks worldwide are not first adopters of the xRapid product, but we are seeing a lot of financial institutions in general and payment providers moving forward with that product," Birla said.

"We have a lot of business with payment providers," he said, adding that "in certain markets I think banks will move faster towards leveraging digital assets, and so it really depends on the regulation and the local market."

The executive said that banks in emerging markets were potential contenders to use the cryptocurrency product in the future.

"Those countries have a lot more forward-looking regulation when it comes to digital assets, so I would envision that those would be the first bank adopters."

Industry too focused on 'speculation'

Two weeks ago, Sagar Sarbhai, head of regulatory relations for Asia-Pacific and the Middle East at Ripple, told CNBC he was "confident" that news of xRapid's commercial application would be announced "in the next month or so."

And Ripple's Garlinghouse has also said he believes "dozens" of banks will use XRP by the end of 2019. The firm's xRapid product is primarily targeted at banks transferring money into emerging markets.

Ripple CEO: Expect dozens of banks to use our cryptocurrency next year
Ripple CEO: Expect dozens of banks to use our cryptocurrency next year

The price of XRP soared in value in the days following CNBC's report about Ripple edging toward a live rollout of xRapid. It also found support from news that U.S. bank PNC had joined its clientele of banking partners. However, it subsequently plummeted following that spike in value.

The cryptocurrency's price is currently well off a record high above $3 it notched at the start of the year — it is now worth almost 60 cents. Nevertheless, that hasn't stopped it from maintaining its position as the third-largest digital currency by market capitalization — a figure worked out by multiplying the price by outstanding tokens in circulation — with a market value of $23.3 billion, trailing behind rival cryptocurrency ether's $23.9 billion market cap.

Speculation and volatility in the virtual currency market has garnered the attention of regulators, particularly in China and South Korea. Both of those countries have banned the controversial practice known as an initial coin offering, where blockchain ventures sell new digital tokens in exchange for cryptocurrencies like bitcoin and ether, or cash.

"If the industry in general got more focused on customer problems and less about speculation, I think the entire industry would really be a heck of a lot better," Birla said.

How it works

Ripple says xRapid uses the digital asset as a kind of "bridge" between currencies, allowing payment providers and banks to process faster cross-border transactions.

For example, a bank might want to process a transaction from U.S. dollars to Mexican pesos. According to Ripple, this process normally requires pre-funded local currency accounts in order to take place. Ripple claims that process can be bypassed by converting the U.S. dollars into XRP tokens through a cryptocurrency exchange, moving the money overseas, and converting it into Mexican pesos via a local digital asset exchange on the other end.

The fintech firm has partnered with many banks, but those partnerships have so far been primarily focused on the testing and use of its xCurrent product, which is used by banks to track information about a payment in real-time and without a counterparty in order to speed up the process of settlement.

Santander for example has used its blockchain-based product to create a money transfer service called One Pay FX. The platform lets users make same-day international transfers, according to the bank.

Figures released by Ripple on Monday show the firm doubled the number of customers signed up to its network in the third quarter from the same period in 2017 — it currently has more than 120. Its business partners are located across more than 40 markets.

"I think we've had a better year," Ripple's senior vice president of product Birla said. "We've had a lot of adoption, our sales team is out there now closing over two deals per week over our suite of products, and so it's just been a better and really a momentous year for Ripple."

Ripple also said its total staff headcount had almost doubled, nearing 300 employees. It did not, however, disclose any financial figures.

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