- xRapid makes cross-border money transfers in minutes (and up to 70% cheaper than current systems).
- xRapid is now live and used commercially by at least three financial companies.
- xRapid uses Ripple’s cryptocurrency XRP to settle payments.
Updated on October 4th, 2018 to include new xRapid developments.
Ripple’s astonishing price rise was driven by its partnerships with banks like Santander, American Express, and Western Union. However, most people misunderstood one thing:
The banks weren’t actually using the cryptocurrency XRP yet.
That’s set to change with the introduction of xRapid. Announced at the Ripple Swell event in October, three financial services are now officially using xRapid to settle international payments.
One of those services, MercuryFX, says xRapid improved transfer speeds from the UK to Mexico from days to just two minutes.
Other banks have reported 40%-70% savings when piloting the xRapid service.
But what is xRapid and how does it use cryptocurrency? First, let’s clear up a few terms.
The Difference Between Ripple and XRP
Ripple is a company that aims to speed up cross-border payments. Ripple has partnered with over 100 banks and boasts a range of money transfer services using blockchain and cryptocurrency.
XRP is the cryptocurrency created by Ripple. It is not currently used by most banks, but it’s a big part of their future plans and the xRapid service.
The Current State of Ripple’s Bank Partnerships
Most of Ripple’s 120+ bank partners are using a Ripple service called xCurrent. It uses blockchain technology to help banks make faster payments and communicate better.
But it does not use XRP to settle transactions.
Ripple intends to use xCurrent as a way to onboard its banking partners before convincing them to upgrade to xRapid.
What Is xRapid?
xRapid aims to make those transactions even faster and cheaper. Most importantly, it does use XRP to settle the money transfer.
XPR is used as a “bridge currency” in the process.
Here’s how it works…
Let’s say Bob lives in the UK and wants to send £1,000 to Alice in India.
Using xRapid, Bob’s bank instantly transfers the £1,000 into XRP, via a cryptocurrency exchange.
The XRP is then instantly converted into Indian rupees via a partner exchange in India.
The fees are almost zero and the whole process takes a matter of seconds.
Had Bob used the traditional bank system, it would take days and cost him a large fee.
xRapid: An End to Nostro Accounts
The description above is a very quick outline of how xRapid works, but there’s a reason why it’s so powerful:
Banks need liquidity (i.e. lots of available money) to make a foreign exchange. And the current way they source liquidity is wildly inefficient.
Let’s go back to Bob and Alice. To send money to India using the traditional system, Bob’s UK bank needs a “nostro account” in India. The nostro account is pre-funded with millions in local currency. (This is the liquidity).
Banks have pre-funded nostro accounts like this in every country with a different currency to facilitate cross-border transfers. It’s expensive and incredibly inefficient.
By switching the local nostro accounts for a digital cryptocurrency, there’s no need for bank accounts full of foreign currency all over the world. It’s faster, cheaper and more efficient.
Got It. But Are Banks Using xRapid?
Three financial companies are currently using xRapid on a commercial scale. They are Catalyst Corporate Credit Union (a financial firm), Cuallix, and MercuryFX (money transfer services).
The vast majority of Ripple’s other bank partners, like Santander, are using xCurrent, but Ripple is trying to nudge them towards xRapid. Some banks have begun testing the xRapid product and reported 40-70% savings.
Ripple CEO Brad Garlinghouse said that “dozens of banks” will be using xRapid by the end of 2019.
But it’s a big task. As Ripple’s Sagar Sarbhai explained, “a couple of years ago the narrative was: blockchain good, crypto bad.” Banks were open to blockchain technology, but wary of using cryptocurrency to settle payments.
Sarbhai says that’s beginning to change.
“I think that narrative thankfully is now changing because policymakers, regulators are seeing that there is a strong benefit that digital assets, cryptocurrencies bring in.”
xRapid Now Commercially Available
This is the moment that most XRP holders have been waiting for. xRapid is considered Ripple’s silver bullet because it actively uses the XRP token to settle payments.
If more banks adopt xRapid, the volume (and price) of XRP is expected to increase dramatically.
Why? Because banks and (especially) cryptocurrency exchanges will have to hold large sums of XRP in order to make the transfer. The transfer itself will only require XRP for a matter of seconds, but the services still need a pool of cryptocurrency to execute the trade, thus driving up demand.
Let’s look at this way. If xRapid replaced just 1% of the current international bank transfers through SWIFT, the daily volume of XRP would increase 250x.
Ripple is Quietly Building Exchange Partners
To make these instant XRP trades, Ripple is busy partnering with as many crypto exchanges as possible.
So don’t be surprised if the banking partners are slow to adopt xRapid. The exchange partners must come first.
Update: Ripple Merges xRapid into One Service, RippleNet
Since we first published this article, Ripple appears to have removed any mention of xRapid and xCurrent on its website.
Instead, it is now just one product: RippleNet.
It looks like Ripple is bundling its services together in one simple package. This will make it much easier to convince banks to ultimately shift to XRP transfers.
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