Ripple’s cross-border payments service, xRapid*, purports to be faster and cheaper than all other, standard remittance services, such as Western Union and TransferWise. And a ton of services have already signed up to xRapid, including Texas-based remittance service MoneyGram. Are these services, then, faster and cheaper as a result of using xRapid?
Renowned crypto analyst Colin Platt attempted to find out, and the answer was a resolute…no. Platt compared potential fees on the xRapid-enabled MoneyGram with those on the regular, centralized service TransferWise, and found that XRP actually increases fees by upwards of 40 percent.
A $1,000 payment from the US to Mexico, for instance, is 2.14 percent cheaper on TransferWise, according to Platt’s analysis. A $10 payment, meanwhile, is 41 percent cheaper. “There’s that small payment that apparently XRP is so good for,” scoffed Platt. (We tried the analysis several times over the course of a month, and the results changed little.)
That’s not ideal. Ripple bills itself as being cheaper for both consumers and banks. The company says its proprietary cryptocurrency, XRP, frees up “dormant” capital “locked up” in correspondent banks’ nostro and vostro (overseas checking) accounts. And supposedly this trickles down to the consumers, who will benefit from cheaper processes on the back-end.
But Platt found little to affirm this. While MoneyGram did indeed fare much better against Western Union, Western Union deals in cash, which is more expensive. And when we compared MoneyGram with two more closely similar services, the London-based firms TransferGo and WorldRemit, both, like TransferWise, proved cheaper. (Platt tested only the US-Mexico payments “corridor,” one of the few to have gone live.)
Platt points out that Ripple really ought to come first, or it’s worthless. “The point that Ripple makes is that they are the best,” he said. “So that should mean that they are better than the best option, no? It’s like saying that you built the fastest car, and you tell me that it is faster than a Porsche. Then I show you a Ferrari, and you say, sure a Ferrari is faster, but we’re faster than a Fiat.”
Other prominent partnerships touted by the company don’t seem to have amounted to much. Prior to his recent experiment, Platt ran an analysis of TransferGo — which is also set to integrate with xRapid — and found similarly expensive fees. But a Ripple spokesman insisted the TransferGo-xRapid integration was not yet enabled (despite previous comments seemingly to the contrary).
As with TransferGo, so with MoneyGram. Though Ripple and MoneyGram acknowledged that the MoneyGram-xRapid corridor is, at least, “live in Mexico,” the company brushed aside complaints about the poor fee rates, linking to an earnings call in which MoneyGram claims to have seen a boost to its bottom line. “To have an impact on MoneyGram’s bottom line in such a short period of time is an indication of the transformative impact that RippleNet and XRP will have on cross-border payments,” said a spokesperson.
But note the use of the world “will”. A person with knowledge of the matter said that only a portion of Mexico-US transactions currently use xRapid, and it is therefore “not possible” to confirm whether any of our trial used xRapid or MoneyGram’s “existing tech.”
“Moreover, as the corridor was announced in June and live in late July, Ripple wouldn’t be able to show cost savings at a consumer level just yet,” said the person.
In a nutshell, Ripple is suggesting that we can discount xRapid’s apparent uselessness because it’s both “impossible to confirm” whether it’s actually being used, and is otherwise not, in fact, cheaper for consumers. Instead, it only serves back-end stuff for the banks working behind the scenes, things like cash flow and “working capital needs,” as Ripple told us.
But even this sounds like “nonsense,” said author and economist Frances Coppola, a frequent critic of Ripple. “If there are no customer benefits, they won’t get any traffic, ergo no additional earnings and cash flow, and no difference to working capital needs.” (Which Coppola has previously argued don’t make sense anyway.)
Platt agrees. “If that’s the case, and all other companies can operate on something that is supposedly more expensive and turn a profit while charging me less,” he asked, “what’s the benefit of Ripple?”
*Now rebranded as “On Demand Liquidity”