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To be successful, a modern global payments solution requires the convergence of three important components. First, sophisticated technology built for an increasingly global and high-speed economy. On top of that, clear commercial rules to govern, with certainty and predictability, how the technology is used for payments. And, lastly, a diverse network of global financial institutions to implement these new capabilities.
This article homes in on the second point: commercial rules. Commercial rules, as well as expertise in payments law to craft them, are key for new technology to push on to become a mature enterprise infrastructure for a truly modern global payments network.
For institutions considering any new technology for their cross-border payments, it is important that the solution come with a well-defined framework that clearly and transparently spells out what is occurring over the technology to settle payments, as a commercial matter. When these rules are thoughtfully tailored to the new technology and crafted with awareness of payments law, the clarity and certainty they bring can mitigate risks, as well as drive global market implementation.
This is why Ripple created a clear network framework that provides financial institutions with clarity and certainty regarding their mutual rights and obligations when they execute transactions using Ripple’s solution. In support of this work, Ripple engaged with global banks dating back to the early days. Collaboration culminated in September of last year, with the announcement of the Global Payments Steering Group (GPSG), the first interbank group for global payments based on distributed financial technology. Since then, the GPSG has made significant progress including the addition of MUFG.
To illustrate how payments law can drive innovation, consider settlement finality as a case in point. Financial institutions using any technology to sending cross-border payments between each other need clarity on the moment in time the payment settles. Ripple’s network framework, anchored in payments law, provides this clarity. Why is this important? It provides certainty for the sending institution that their payment obligation has been satisfied. It also allows the receiving institution to be confident that the settled transaction cannot be canceled, enabling them to more efficiently utilize their capital. As a result, Ripple’s network framework and payments law expertise maximizes efficiencies and paves the way for financial institutions to more effectively use their resources in new and innovative ways.
New technology paired with effective commercial rules can lead to more robust, resilient, and effective financial products and services. Ripple understands the needs of financial institution customers and has designed a solution to effectively solve their unique cross-border payment needs.
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