Although blockchain technology has the potential to transform the international banking and payment network, TransferWise’s co-founder and current chairman, Taavet Hinrikus, remains quite skeptical of the emerging technology.
According to Hinrikus’ interview with Fortune aired on November 19, 2018, the TransferWise co-founder believes that while blockchain may look great on paper, it is very hard to make use and implement the technology in a real practical way.
Blockchain is Great on Paper But Difficult In Reality
TransferWise, the London-based money transfer startup is currently not interested in blockchain technology as the company does not see the tangible benefits of the emerging technology. Hinrikus mentioned that, while many argue that blockchain technology is revolutionary, the technology is still in its early days.
While the co-founder has explored different blockchain networks, he hasn’t found a network that enables TransferWise to provide their service on a cheaper or faster level. A large part of the issue stems from the fact that blockchain technology had not achieved a large enough adoption for banks to make it more efficient than existing legacy payment systems.
Although TransferWise launched just seven years ago in 2011, the company is performing very well. TransferWise can ensure that money is sent internationally from Australia to the United Kingdom in 15 seconds with a fee of 1 percent or lower. The speed and cost are significantly faster and lower in comparison to traditional banks which usually take days, and would charge significantly higher fees, especially when it comes to international transactions.
Despite their low fees, the company has been profitable for two years in a row. While TransferWise is open-minded and willing to explore blockchain technology and Ripple, they have not seen a case where the new technology provides a better proposition than what they currently offer.
“If every bank in the world was going through the Ripple network, it would be amazing,” said Hinrikus.
“Yet how many banks are using Ripple today in production? It’s a very short list. In that sense we’re big supporters of Ripple or anything else…and if any of these gets enough adoption, and it actually materially helps us do things cheaper and faster, we’d love to, but so far we haven’t found one.”
Ripple is Too Expensive, Says Western Union
Like TransferWise, Western Union also sees a lack of financial benefit from implementing the Ripple Payments System. According to an article published by Fortune in June 2018, the money transfer company tested Ripple 6 months ago. While the Western Union CEO, Hikmet Ersk noted that the Western Union is still experimenting with xRapid, a Ripple payment system that transfers money between foreign currency to settle payments, Ripple has unfortunately not provided any clear financial gain for Western Union.
“We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests,” said Ersek in an interview with Fortune.
“The practical matter is it’s still too expensive. He noted that Western Union would only be interested in Ripple’s service and using XRP for payments if there was clear proof that Ripple could lower the organization’s costs.”
Ersek however, mentioned that the lack of results in the pilot could also be because the test was too small and performed too early on to draw significant conclusions. Western Union mentioned that they have only tested ten payments using xRapid and have only tested Ripple for the transfer between Mexican Pesos and US dollars.
Asheesh Birla, the senior vice president of product for Ripple noted that, while the experiment lasted about six months, it took almost six months for Western Union to undergo the internal groundwork and allocate appropriate resources for these tests, so the actual pilot only lasted a week or two. If Western Union moved volume at scale, Birla believes that there was potential to see financial benefits and improvements, however with only ten payments, it’s not a surprise that the company did not see any clear cost savings.
The disappointing experience from Western Union highlights a significant hurdle for the mainstream adoption of blockchain technology. The emerging technology has to be significantly superior to the existing system, in this case, existing payment tools. It’s difficult for Ripple to demonstrate this since Western Union’s current payments transfer system is exceptionally efficient.