Ripple Blockchain Technology Set to Revolutionize Saudi Arabian Banking Sector
San Francisco start-up Ripple is revolutionizing the
banking sector with its blockchain technology which makes payment transfers
quicker and cheaper. Successful trials at banks such as BBVA and SCB have
thrown a spotlight on the hottest global trend in the world of fintech
The world’s largest
Islamic bank, the Saudi Arabian Al Rajhi Bank successfully completed a Ripple
blockchain trial, where it successfully transferred money between Saudi Arabia
and Jordan bank branches. This news comes on the back of a good week for the
bank on the Tadawul, the Saudi Arabian stock market on which it trades, where
it closed on a 32-month high. TechSci experts weigh in on the developments as
they unfold.
What is Ripple?
Ripple is a
venture start-up headquartered in San Francisco, with offices in New York,
London, Luxembourg and Sydney. The company specialises in providing financial
settlement solutions and is drawing significant interest from many in the
banking industry because of its innovative approach to cross border money
transfers. Ripple has engineered a payment system like blockchain, which uses a
shared ledger to process transactions. The network allows assets to move
freely, directly and instantly therefore reducing time and cost of clearing,
which makes the process less time consuming and much cheaper (Ripple claims
that transaction costs can go down by as much as 60% using the distributed
ledger technology for retail remittance and commercial payments).
Technical jargon
aside, here is what the blockchain is in simple terms: banks and other underwriting
financial institutions have, traditionally, leveraged their role as guarantors for
resolving payment-based uncertainties, for a hefty premium. Blockchain offers a
cryptographic hashing system for proof of verification, a ‘virtual guarantee’
of sorts, thereby limiting the need for brokerage in many parts of the
financial world, saving money and time. Ripple uses its own cryptocurrency
called ‘XRP’, which is used as bridge currency if there is no direct exchange
between two currencies at a given time.
The Way Forward
Al Rajhi joins a
growing list of institutions, including MUFG BAML, Santander, Bank of America
Merrill Lynch, Santander, Standard Chartered, Westpac Banking Corporation,
Royal Bank of Canada and CIBC and RBC are a number of banks that are in the
process of or are already using Ripple technology to streamline their
transaction processes. According to TechSci Research report “Saudi Arabia Consumer Finance Market By
Type, Competition Forecast & Opportunities, 2012-2022”, the consumer
finance market in the country is set to grow to $ 344 billion by 2022, with Al
Rajhi Banking & Investment Corporation SJSC being the major market player
and growth driver. It stands to reason that Al Rajhi will act as a trailblazer
for other finance institutions in the country in terms of adoption of Ripple
technology, which will have a positive effect on the market as a whole.
As per experts
at TechSci, institutions in neighbouring countries, such as National Bank of
Abu Dhabi, have already successfully trialled Ripple, and there is a strong
supposition that strong market cues, if they are a likely indicator, will make
it likely that other banks follow suit as well.
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