* Key insights: Ripple is adding more payment processing technology for stablecoins and traditional currency.
* What’s at stake: The company is competing with the large card networks and payment fintechs in chasing a small but quickly expanding stablecoin market.
* Forward look: Celent’s Alenka Grealish estimates stablecoin payment adoption could reach double digits in some markets, but will likely not be mainstream.
With banks weighing their options for stablecoins and other digital currencies, Ripple is enhancing its technology, betting banks will demand centralized technology that can be quickly deployed.
The blockchain technology company has expanded its Ripple Payments service, which sells payments technology, adding more processing functions that can accommodate traditional and digital currencies in the same processing system.
Ripple is adding new technology as stablecoin volumes expand — the total stablecoin volume has grown from about $133 billion to $310 billion in the last three years. While that’s relatively small, the fast growth and enabling regulations are drawing investment from card networks, payment fintechs and other firms looking to sell technology to financial institutions.
“Banks should pay attention to stablecoins because it’s getting a lot of attention,” Matt Higginson, a partner at McKinsey, told American Banker.
Ripple’s tools
Ripple, which is associated with the XRP digital token, gained traction in the past decade by selling its crypto-enabling distributed ledger as a way to streamline cross-border payments by avoiding correspondent banks.
That placed the company in opposition to traditional financial services. But more recently, Ripple has courted commercial and central banks with technology designed to ease e-commerce adoption and central bank digital currencies.
This week, Ripple is applying technology from earlier acquisitions of technology firms Palisade (which supports custody and treasury automation) and Rail (virtual accounts and collections) to enable users to collect, hold, exchange and make payments in stablecoins and traditional currencies.
Ripple contends this can automate processing and settlement without using multiple vendors or payment processors, a claim PayPal and Stripe are also making through a series of technology deployments in the past week. Ripple did not provide comment by deadline.
“For the global financial system to evolve, fintechs and financial institutions need infrastructure that treats digital assets with the same rigor as traditional finance,” said Monica Long, president at Ripple, in a release, adding Ripple is live in more than 60 countries. “Success in this space requires enterprise-grade infrastructure, extensive licensing, and deep liquidity — capabilities few can match.”
Why payment companies like stablecoins
Ripple is not alone among payment firms that are investing heavily in infrastructure and marketing for stablecoins and related options such as tokenized deposits. In many cases, it’s a matter of keeping up with technology that may or may not become a major force.
“In general, these networks will always invest early in new technologies to maintain their relevance,” Olivia Haller, consultant at Cornerstone Advisors, told American Banker.
Stablecoin payments will likely not reach mainstream adoption, but be accepted by half of consumers, Alenka Grealish, an analyst at Celent, told American Banker.
“To assess the potential, one must look at the country level. Stablecoins’ real world value proposition varies dramatically by country and regulations, such as limits on value held and reward structure,” Grealish said, adding that without regulatory limits on stablecoins, usage could reach 16%.
For consumers and businesses in countries with high inflation and/or volatile currencies and/or currency controls, the value proposition of stablecoins as a store of value and medium of exchange are strong, according to Grealish.
“In these countries, the mainstreaming of stablecoins relies on regulators not intervening,” she said. “For example, if half the population of Argentina — about 23 million people — keep stablecoin deposits, there is a risk the government will limit usage.”
