Financial institutions should remain at the heart of the payments sector, but only after a technological revolution, according to Chris Larsen, CEO of real-time payments and settlement system Ripple.
Speaking at the EBAday annual congress in Amsterdam, Larsen pointed out that the first payments networks were built to serve a small geographical area such as a town or city. As these networks grew, central clearinghouses emerged, followed by facilities to serve a large number of banks in broader geographical regions.
He said: “Each of these eras was marked with a geographical breakthrough.”
However, the payments infrastructure has not extended beyond using a single currency, and there is still a lack of traceability on payments. Larsen added: “It’s out of step with customer needs.”
According to Larsen, the market should be looking for increased speed, greater interoperability and lower costs and risks, and regulators are actually being proactive in pushing this.
“We are on the cusp of another major era in payments, which we think will be cross-border and cross-currency payments,” he said.
“Everyone is clamouring to seize that.”
Payments will have to have a better geographical reach, and transfer as quickly as an email, but the system should be “built on the existing bank infrastructure.”
It would be additional and complimentary to existing bank services, and support payments of any size.
Larsen called this structure the ‘internet of value’, as opposed to the existing ‘internet of knowledge’, and predicted an uptick in usage similar to the one seen in the ‘traditional’ internet when it became available to the global market.
In order to function, this ‘internet of value’ requires finance, regulation, and technology, and according to Larsen, it is the banks that are best placed to manage this effectively.
“They are the best at operating collateral and compliance,” he said, adding: “We are in a new era of payments—the world is interoperating.”
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