On Monday (March 18th), IBM announced the official launch of IBM Blockchain World Wire (which it quietly introduced in September 2018), and said that its blockchain-powered cross-border payments solution is "now in limited production and available in a growing number of countries."
What is IBM Block Chain World Wire?
Here are what IBM sees as the problems/limitations of traditional cross-border payment solutions:
- "Separate clearing and settlement"
- "Involves middlemen"
- "Slow processing"
- "Requires high fees"
- "Fluctuating exchange rates"
- "Error-prone and insecure"
IBM's solution is powered by the Stellar network. IBM Blockchain World Wire "provides shared distributed ledgers for atomic payment clearing and settlement in near real-time," and the network "uses digital assets — serving as the agreed-upon store of value exchanged between parties — to settle transactions while integrating payment instruction messages."
This diagram illustrates the role of the various actors involved in a cross-border payment:
IBM says that its solution brings major benefits in three areas:
- Trust: "Increased transparency"; "Immutable transaction history";
- Simplicity: "Decreased need for intermediaries"; "Shared distributed ledger system";
- Efficiency: "Near real-time remittance"; "Easy consensus between stakeholders";
The process of making a cross-border payment using Blockchain World Wire (which uses the Stellar protocol) has the following steps:
- "Two financial institutions transacting together agree to use a stable coin, central bank digital currency or other digital asset as the bridge asset between any two fiat currencies."
- "The institutions use their existing payment systems – seamlessly connected to World Wire’s APIs – to convert the first fiat currency into the digital asset."
- "World Wire then simultaneously converts the digital asset into the second fiat currency, completing the transaction." ("All transaction details are recorded onto an immutable blockchain for clearing.")
IBM's press release says that IBM Blockchain World Wire, so far, has "has enabled payment locations in 72 countries, with 47 currencies and 44 banking endpoints," and that as it gains regulatory approval around the world, it will expand its global payments network, which "already supports settlement using Stellar Lumens and a U.S. dollar stable coin through IBM's previously-announced collaboration with Stronghold."
Although no banks have actually signed up yet to use World Wire, six international banks, including Banco Bradesco, Bank Busan, and Rizal Commercial Banking Corporation (RCBC), have "signed letters of intent to issue their own stable coins on World Wire, adding Euro, Indonesian Rupiah, Philippine Peso, Korean Won and Brazilian Real stable coins to the network." As IBM has said previously, it plans to "continue to expand the ecosystem of settlement assets based on client demand."
Marie Wieck, General Manager, at IBM Blockchain, says:
"We've created a new type of payment network designed to accelerate remittances and transform cross-border payments to facilitate the movement of money in countries that need it most. By creating a network where financial institutions support multiple digital assets, we expect to spur innovation and improve financial inclusion worldwide."
Luiz Carlos Brandao Cavalcanti Junior, Innovation and Digital Channels Executive Director, at Banco Bradesco, says:
"Bradesco continuously adopts innovation that enhances customer experience and improves efficiency. The World Wire Network addresses both of these aspects, and therefore presents a valuable opportunity for Bradesco and its customers in Brazil."
Meanwhile, Manny T. Narcisco, First Senior Vice-President, at Rizal Commercial Banking Corporation, says:
"RCBC is pleased to be an early innovator with plans to issue our own Peso stable coin on World Wire, pending final approval from our regulators. We're focused on innovation that adds value for our customers, and World Wire presents a tremendous opportunity to transform and enhance our payment infrastructure."
IBM's World Wire vs Ripple's xRapid
So, should Ripple be worried?
"Credit Ripple for the vision of using a digital asset in order to enact immediate settlement with finality. I think their implementation followed one path. Our implementation is a little bit different. We are not the issuer of an asset. In fact, what we believe is that there should be an ecosystem of a variety of digital assets that provide the settlement instruments that enable these cross-border payments. The participants on the network should be able to choose and negotiate their choices in real-time and the pricing might be different depending on the settlement instrument you use. So, I think with Ripple, they're looking at XRP as the primary digital asset for settlement, and for us, it could be lumens, it could be Ripple, it could be XRP even, it could be Bitcoin, but it would also probably include other instruments like stablecoins and even eventually, hopefully soon, central bank issued digital currencies."
Although both World Wire and xRapid are competing solutions in an industry that IBM expects will be worth approximately $2 trillion by 2020, World Wire only went live in production yesterday and it does not have any actual customers, while xRapid went into production in October 2018, and already has multiple customers who are using it for actual cross-border payments. For example, most recently (on March 5th), we heard from UK-based cross-border payments specialist Mercury FX, which announced that it had just completed its first live commercial payment to the Philippines via xRapid.
Although some might see this as a zero-sum game, it is very possible that IBM's entry will only serve to legitimize blockchain-powered cross-border payments, and that both companies can be very successful. Furthermore, we should not forget that World Wire is agnostic about which digital asset is used as the bridge currency, and as IBM's Lund expressed last month, that currency could be XRP.
Also, both companies should keep in mind that rather than fight each other, they should focus on their real competition, SWIFT, with its "gpi" product, which does address some pain points, but fails to "enable settlement at the time of payment," as Ripple CTO David Schwartz pointed out on March 14th during an interview at the SXSW 2019 conference.