Western Union Not Giving Up on Ripple

Siamak Masnavi

It seems that cross-border payments specialist Western Union has not given on the idea of using Ripple's technology. In fact, in a recent interview, Molly Shea, Western Union's General Manager for the Asia-Pacific (APAC) region, confirmed that Western Union was still exploring the use of blockchain and cryptocurrencies.

But before we examine Shea's comments, especially those regarding Ripple, we need a brief recap of the history of the relationship between Western Union and Californian FinTech company Ripple, which specializes in proving technological solutions for cross-border payments.

On 14 February 2018, Fortune reported that during an earnings call, Western Union CEO Hikmet Ersek had "told analysts that the company is experimenting with Ripple for settling transactions and for capital optimization." Later in the day, this news was confirmed by Ripple via a tweet that indicated that Western Union was interested in a pilot study involving Ripple's xRapid product (which uses XRP as the bridging currency in cross-border, cross-currency payments):

Also, a Ripple spokesperson told Fortune at that time:

“We’ve been testing different products with Western Union for a while. We’re excited about our work towards a pilot implementation of xRapid, which uses XRP in payment flows."

However, just a few months later, to the surprise of Ripple and many/most XRP investors, the Western Union CEO made a shocking revelation to Fortune in another interview. He said that although he didn't “want to kill” the xRapid trial, early results had failed to convince him that Ripple's solution was more cost-efficiency than Western Union's existing solution.

But it is worth noting that Ersek had warned that this pilot might be too early and too small to serve as conclusive evidence that xRapid was not suitable for their business (since Western Union had only done a small amount of testing along the U.S.-Mexico payment corridor). Indeed, Asheesh Birla, Ripple’s Senior Vice President of Product, did confirm that Western Union had only sent 10 payments using xRapid up to that point and that most of the past several months had been spent by Western Union getting ready for the experiment and "so the actual pilot was only a matter of a week or two." Birla also said:

“If they were to move volume at scale, then maybe you would see something, but with 10, it’s not surprising that they’re not seeing cost savings. They do millions of transactions a month, and I’m not surprised that with 10 transactions it didn’t have earth-shattering results.”

Then, on 17 December 2018, in an interview with Reuters PLUS, Odilon Almeida, the President of Global Money Transfer at Western Union, confirmed that his company was still exploring the use of cryptocurrencies and blockchain technology:

"There are two elements to the cryptocurrency: the first element is the digital currency itself, and the second one is the technology behind it, the blockchain. The blockchain technology has many applications... It's all about storing information an exchanging information in a very efficient and effective way. This technology, I believe, has a lot of potential... On the other hand, if you want to have a digital currency that is broadly accepted and used, you need to have at least three things. You need to solve for volatility, compliance, and governance. We are starting to see now some digital currencies solving for volatility when they peg its value to a strong currency like the dollar, but you still need to solve for governance and compliance...

Our pilot for Ripple goes into the same space. It's about learning. So, we are looking at the blockchain technology and really seeing if it can make us more efficient...

Western Union is ready today to adopt any kind of currency. We already operate with 130 currencies. If one day we feel like it is the right strategy to introduce cryptocurrencies to our platform, technology-wise, it's just one more currency. I think cryptocurrencies may become one more option of currency or assets around the globe to be exchanged between people and businesses. If that happens, we would be ready to launch."

Now, we can come back to the latest comments by Western Union about cryptocurrencies and more specifically Ripple.

In episode 284 of the "Analyse Asia" podcast, Shea was interviewed by the host, Bernard Leong, and asked various questions about Western Union's money transfer business. Around the 28:10 mark, Leong asked Shea what were her current views towards blockchain and its applications to remittance. Shea answered:

"We believe physical currency, as we know it today, is not going away. Cash is still the predominant form of payment in most of the developing world, and it's difficult to see that changing quickly. It's too early to predict the impact of virtual currency on the money transfer business. It really is, but you’ve got to be studying it as it evolves. But as the company that invented the concept of digitizing money, Western Union is well positioned to connect the cash and digital worlds for our consumers, and we will continue to leverage our capabilities where we see those opportunities. We are open to exploring new business opportunities, particularly, those that give us the opportunity to offer more choices to our customers. So, Blockchain and cryptocurrency space is rapidly evolving, and we continue to explore possible applications for our business. As some examples, we are piloting some settlement tests with Ripple for certain corridors, I think the USD and the MXN is one example, and really learning about possible opportunities. The options that we choose will need to be legitimate and widely acceptable for consumer use.”

Since we know that Western Union started looking at xRapid for settlement along the U.S.-Mexico payment corridor around the beginning of 2018, Shea's remarks seem to suggest that Western Union has been continuing its xRapid trial, which could mean that their experiments involving xRapid and XRP must be at least promising.

Featured Image Courtesy of Ripple

'Important Discrepancies' Were Reportedly Found in Ripple's XRP Release Schedule

Omar Faridi

Coin Metrics, a cryptocurrency financial data provider that compiles “hard-to-acquire” data for large blockchain platforms, has revealed that it discovered several major inconsistencies in its recent evaluation of XRP’s supply schedule and escrow system.

As detailed in an official report published on May 16, 2019, on Coin Metrics’ website, the data provider found that two quarterly market reports, released by American fintech Ripple Labs, the developer of XRP, had inaccurately reported the number of XRP taken from escrow.

Notably, Coin Metrics’ investigation found that Ripple had “under-reported” the XRP released from escrow by “a total of 200 million XRP,” an amount valued at around $84 million at current prices.

"A Faster Future Release Of Escrowed Funds"

Other irregularities found by Coin Metrics’ researchers showed that the “escrow queue” had been implemented in a manner that was noticeably different than what Ripple Labs’ management had announced. According to the firm, the actual escrow queue used “led to a faster future release of escrowed funds” than what the announced schedule appeared to suggest.

Additionally, the Coin Metrics team learned that other parties, which may have been associated with the management at San Francisco-based Ripple Labs, could have taken out around 55 million XRP from an “unknown escrow address.” This address, it noted, may have not been directly “connected to the main Ripple escrow account.”

Coin Metrics’ report pointed out that in late March 2017, Ripple Labs’ management stated: 

Escrow allows XRP Ledger and ILP [Interledger Protocol] to communicate to secure XRP for an allotted amount of time or until certain conditions are met. This can be used to hold funds until a service is completed, or until a moment in time such as a birthday.

Investors Can “Mathematically Verify” XRP Introduced To Markets?

In a blog post published on Ripple’s website, by its CEO Brad Garlinghouse, on May 16, 2017, it was noted that the US-based fintech firm was “committing to place 55 billion XRP” into its escrow account by the end of the year (2017).

This, Ripple’s post explained, would be done in order to “permanently remove uncertainty” regarding the amount of funds held by Ripple Labs. The blog post further mentioned that by securing the majority share of XRP tokens, investors would be able to “mathematically verify” the total XRP supply that has entered the market.

It further stated that whatever XRP was not used out of the total 1 billion unlocked each month would be placed back in escrow.

As noted by Ripple Labs:

We’ll use Escrow to establish 55 contracts of 1 billion XRP each that will expire on the first day of every month from months 0 to 54. […] We’ll then return whatever is unused at the end of each month to the back of the escrow queue. For example, if 500M XRP remain unspent at the end of the first month, those 500M XRP will be placed into a new escrow account set to expire in month 55.

25 Contracts Of 1 Billion XRP, Not “55 Contracts Of 1 Billion XRP” As Announced

What this meant was that Ripple would not be able to “sell more than 1 billion XRP” each month for “at least the next four and a half years,” Coin Metrics’ blog explained.

On-chain data (from the XRP ledger) indicates that 55 billion XRP were placed in escrow on December 16, 2016, Coin Metrics wrote. Notably, Coin Metrics’ research team found that although Ripple’s announcement stated that “55 contracts of 1 billion XRP” would be put in escrow, there were actually 25 contracts of 1 billion XRP.

These were set to expire monthly “from January 2018 to January 2020 and another 60 contracts of 500 million XRP each with two expiring at the beginning of each month from February 2020 to July 2022,” Coin Metrics’ report revealed.

"Misreporting" Number Of XRP Placed In Escrow

When Coin Metrics released its report, there were reportedly 17 escrow contracts that had been redeemed and an additional 43 which had been issued. In total, there was 17 billion XRP which had been taken from escrow and 13.2 billion XRP placed back in escrow accounts, meaning a total of 3.8 billion XRP had been released.

According to the firm’s research, which is based on an analysis of two reports, Q3 2018 and Q1 2019, Ripple Labs’ management has “misreported” the number of XRP it placed in its escrow system. Data from both Q3 2018 and Q1 2019 reports shows that XRP transferred to escrow was “over-reported” by 100 million XRP. This effectively “under-reported” the total XRP released, Coin Metrics’ report stated.

On-Chain Data Shows Announced Release Schedule Not Consistent 

One of the assumptions made by Coin Metrics’ researchers is that “any XRP unlocked but unused at the end of month n would end up being escrowed until month n + 55 — i.e., unused XRP would move to the back of the escrow queue.” The crypto data provider noted that it made the assumption after reviewing documentation related to Ripple’s escrow system, which states that the fintech firm will “return whatever is unused at the end of each month to the back of the escrow queue.”

On-chain data obtained from the XRP ledger suggests otherwise, Coin Metrics’ team claims, as “instead of locking unused funds into the first slot (i.e., the first month) with no existing escrow, they were locked in such a way to maintain the fixed amount of 1 billion XRP in escrow per month.”

Coin Metrics’ report further mentioned that on January 6, 2018, the “beginning of month 0,” Ripple released the “first escrow of 1 billion XRP”, and “locked back 900 million XRP for month 55, as expected” towards the end of January 2018.

Significantly "Accelerated" XRP Release Schedule

In February 2018, which would be “month 1” according to Ripple’s release schedule, the American fintech firm “unlocked another 1 billion XRP and used 100 million of it.” Notably, Coin Metrics found that “instead of locking another 900 million XRP in month 56 (September 2022), the first month in which no escrow was scheduled to release, the remaining 900 million were escrowed in two different contracts.”

According to it, one of these contracts was for 100 million XRP which would expire “on month 55, putting the XRP escrowed for that month at 1 billion XRP, and another one of 800 million XRP expiring on month 56.”

As noted in Coin Metrics’ report, month 55 had “previously been designated” as a time period during which “an escrow would be released.” One of the conclusions drawn by Coin Metrics’ team from this type of release of XRP tokens is that:

[Ripple's] modified [XRP release] scheme has in effect accelerated the release schedule of XRP, compared to the strict escrow scheme as was understood by the majority of news outlets and analysts at the time it was reported and as illustrated in Ripple’s examples of how the scheme works.