Cash has long reigned king in Southeast Asia, although increased digitalization brought about by the pandemic is also accelerating digital payments and money transfers. Remittance flows have been found to be resilient against the pandemic, according to a study by the World Bank Group.
Consistent with sustainable development goals of increasing remittances and reducing the costs thereof, tech-driven innovations are providing enterprises, financial institutions, and consumers with access to faster, cheaper, and more accessible transactions. With enhanced regulatory compliance, FinTechs are also ensuring the safety and integrity of transactions. This has a particularly positive impact on the Asia Pacific region, home to some of the world’s top remittance-receiving countries.
In this TechNode Global Q&A with Brooks Entwistle, Vice President and Managing Director for APAC and MENA at Ripple, we learn how such innovations are making an impact on the region.
In July 2021, Ripple announced the launch of RippleNet’s first live On-Demand Liquidity (ODL) service implementation in Japan, in collaboration with SBI Remit Co., Ltd, the largest money transfer provider in Japan and one of the leading mobile wallet services in the Philippines, Coins.ph.
This expanded partnership will see SBI Remit connect with Coins.ph and digital asset exchange platform SBI VC Trade on RippleNet for faster and more affordable cross-border payments from Japan to the Philippines. With ODL now available in Japan, RippleNet customers can leverage the digital asset XRP to eliminate pre-funding and reduce operational costs, unlocking capital and fuel the expansion of their payments businesses.
Formerly the Chief Business Officer at Uber (International), Entwistle joined Ripple in March this year, where he will partner with marketing, sales, and BD to generate a pipeline of fast-growing customers, as well as manage strategic partners in the region. Prior to Uber and Ripple, Brooks spent over 20 years with Goldman, where he founded Goldman Sachs India and later transitioned to Partner and Chairman of Southeast Asia.
Below is the full TechNode Global Q&A with Brooks Entwistle, Vice President and Managing Director for APAC and MENA at Ripple.
What are the emerging trends in the digital payments industry that are driving innovation? Are there such trends particular to Southeast Asia?
Southeast Asia is a unique landscape where cash has long reigned king. But the global pandemic has given rise to a forced accelerated adoption of digital payments–with people across the region shifting online for their day-to-day essentials, such as buying groceries and paying bills. In fact, a recent study found that more than half of consumers in the region already prefer digital payments–and specifically in the Philippines, 53 percent report that they now carry less cash as compared to before the COVID-19 outbreak.
With this emerging preference for digital payments, that naturally leads to consumers increasingly demanding faster and more affordable payment options–which in turn is spurring innovation among fintech startups and traditional financial institutions alike.
Let’s also not forget that remittances are a vital part of the Southeast Asian economy, representing a key source of capital income for developing nations across the region. Yet, traditional remittances still incur very high costs–with the average global fee being around 6.5 percent.
Of course, as digital payment adoption rises, more consumers can now gain access to faster and more affordable digital remittance solutions. So, the onus is now on banks and financial institutions to innovate and adopt new technologies to meet new consumer demands in a post-pandemic era. As a result, crypto- and blockchain-powered payment solutions are quickly gaining traction in Southeast Asia, slowly but surely making their way into historically cash-heavy countries like the Philippines.
For example, Ripple recently launched its first live On-Demand Liquidity (ODL) service in Japan, which saw Coins.ph, a leading mobile wallet service in the Philippines, connect with SBI Remit in Japan. This ODL corridor–which utilizes the digital asset XRP to eliminate pre-funding, reduce operational costs, and unlock capital–will enable faster and more affordable payments from Japan to the Philippines.
Overall, Asia Pacific has emerged as one of the fastest-growing regions for us, with transactions growing 130 percent year-over-year–further proof that the region is open to embracing new technologies and kickstarting its journey towards a future of digital currencies and payments.
What are the three key challenges in cross-border payments that Ripple is addressing? How is the company providing solutions that address these challenges uniquely?
Current global payments systems are outdated, unreliable, and fragmented. If you look at Southeast Asia alone, each country has its own unique process and payments infrastructure–and this lack of interoperability creates a lot of complexity, resulting in cross-border payments often requiring expensive workarounds.
To address the challenges of speed, cost, and transparency in cross-border payments, we built RippleNet–a blockchain-based payment network that takes the best attributes of blockchain; security, privacy, speed, and instant settlement. RippleNet is both decentralized and standardized, enabling it to work without the overhead and constraints of legacy providers’ offerings and to move money with the same speed and efficiency that information moves today.
How is ODL providing a solution to address such challenges? What advantages will on-demand liquidity provide to Ripple’s users?
One key challenge in today’s banking system is that of liquidity–banks can’t pay out until physical cash is in their hands so it causes delays. Ripple solves for that using On-Demand Liquidity (ODL), which leverages the digital asset XRP to bridge two fiat currencies. This eliminates the need for pre-funding in destination currencies and dramatically lowers costs while enabling real-time payments in emerging markets at any time (including after work hours, weekends, and holidays).
From a consumer’s point of view, RippleNet’s ODL service helps to overcome the challenge of high costs incurred when remitting money across borders. Where a typical fiat transaction could take 3-5 days to settle, cross-border payments are now made possible at low cost and in as little as three seconds.
How is RippleNet providing its unique innovations in this space, and what are the benefits for users in the Southeast Asia region?
We’ve already spoken about ODL, but in a nutshell, by using blockchain solutions like RippleNet, financial institutions in the region are able to improve the payment experience of their consumers. Our customers can reduce operational overheads and simplify product deployments, while their end-users can reap the benefits of faster and less expensive cross-border payments.
Many of our customers are also FinTechs and small and medium-sized enterprises (SMEs), who are climbing steep growth curves but often lack access to sufficient working capital. Previously, these businesses would have to take high-interest rate loans or resort to VC money to fund payment flows. Now, through Ripple’s ODL service, our customers have access to Line of Credit to source capital on-demand and initiate cross-border payments at scale. What this means is that our customers are able to purchase the digital asset XRP on credit at a single transparent fee and receive approvals faster than through traditional means, empowering them to scale their business quickly.
This has profound implications for accelerating financial inclusion and creating economic fairness and opportunity, especially in a region like Asia which comprises some of the biggest remittance-receiving countries in the world. After all, the less exposure that people have to volatile foreign exchange rates and hefty transaction fees, the more money we’re putting into people’s pockets. And the pandemic has only made this all the more crucial.
For me, this is a win-win for emerging digital economies, where many are still struggling to gain access to better financial services due to the dominance of legacy systems.
What are the regulatory considerations in utilizing technologies like RippleNet? For business users, does the use of RippleNet mean they will already be in compliance with these regulations?
RippleNet technology is used by regulated financial institutions. We know that compliance and risk management are critical to the financial services sector, which is why our solutions are built to offer greater visibility into and control over cross-border settlement.
RippleNet customers can seamlessly integrate their existing systems and processes, such as anti-money laundering controls, fraud detection, sanction screening, and regulatory reporting, with our solutions. While financial institutions remain responsible for employing their own compliance measures, Ripple offers a way to reduce operational and risk management costs, while reaping the benefits of real-time settlement.
In addition, banks often face increasingly demanding liquidity and compliance requirements. By providing modern infrastructure for cross-currency settlement, Ripple reduces systemic risks in three key ways:
- RippleNet users transact directly with each other, eliminating counterparties and associated settlement risk.
- Users can leverage a competitive marketplace for liquidity instead of depending on one FX provider.
- Using RippleNet to communicate with one another in real-time, users can identify and resolve risks to payments before executing them as well as confirm delivery with absolute certainty.
With more attention being paid to crypto than ever before, we think it’s critical to engage with all stakeholders, and have been working closely with regulators and policymakers across the world to provide regulatory clarity, so as to ensure better compliance across the industry.
What is the future of digital payments in Southeast Asia, and what are Ripple’s strategies in enabling such a future?
I think it’s safe to say we can expect cheaper and faster cross-border remittances as Southeast Asia digitalizes and moves towards greater payments interoperability. For example, Singapore and Thailand collaborated to link the two countries’ national payment systems PayNow and PromptPay in April this year–enabling users to send money instantly and securely between both countries using only their mobile phone numbers. This is a great step in the right direction towards a future of interoperable digital payments.
We’re committed to enriching the fintech payment landscape here and are deepening our footprint across Southeast Asia, as well as the wider Asia Pacific region. Just this year, we expanded the RippleNet network with new regional customers such as Novatti, Mobile Money, and GME Remittance. We also expanded our partnership with Malaysia-based cross-border specialist Tranglo–acquiring a 40 percent stake in the business in March 2021–to continue meeting growing customer demand in the region and scale the reach of our ODL offering.
Beyond that, Central Bank Digital Currencies (CBDCs) will also be a key pillar of the digital payments ecosystem of tomorrow. From China to Thailand and Singapore, countries across Asia are now exploring the use of CBDCs.
However, I’d caution that if each country ends up creating their own digital currency and they decide that those currencies are incompatible, we’ll just be recreating the same system that already exists today. To this end, Ripple launched the CBDC Private Ledger to offer central banks a secure, controlled, and flexible solution for the issuance and management of digital currencies. Our hope is that this will help pave the way towards CBDC interoperability and therefore a more streamlined cross-border payments landscape.
With rapid innovation in enterprise blockchain payments solutions and the openness of financial institutions, regulators, and even end-users, the future of digital payments in this region is really promising–and it’s our privilege to be part of that journey.