A week after the Bank of Canada announced that it will experiment with blockchain technology – the technology that underpins bitcoin – a new round of commercial banks have signed on with a San Francisco-based company to use the cutting-edge technology in the real world primarily to move money across borders in seconds rather than days.
Ripple Labs Inc. is expected to announce on Wednesday morning that seven additional financial institutions have joined its network, including three Canadian players: National Bank of Canada, Canadian Imperial Bank of Commerce and ATB Financial. Royal Bank of Canada joined in 2014.
Blockchain is a distributed ledger – where networked computers record and settle transactions using the same technology underpinning the digital currency bitcoin – and proponents argue that it can improve the speed of transactions and make the financial system far more efficient.
While the Bank of Canada will be using the technology to experiment with a digital currency in a lab-like setting, Ripple – and the financial institutions that have joined its network – are using it to improve cross-border transactions.
Chris Larsen, Ripple's chief executive officer and co-founder, calls it "the Internet of value."
"The world is basically a series of siloed payment networks," he explained, that can slow the transfer of money among countries by days. But blockchain can speed up the process tremendously, making cross-border transfers almost instantaneous, reduce errors and make banks more efficient.
"We've looked at what are the real pain points for banks, and it's pretty clear that cross-border transactions is an area where we can solve a problem right now," Mr. Larsen said.
By his calculations, current inefficiencies cost the global financial system – including banks – $1.6-trillion (U.S.) a year.
While improving the efficiency of cross-border transactions might appear to be a challenge faced mostly by multinational behemoths, it also touches far smaller banks such as Alberta-based ATB.
"I don't think you have to be a technical expert to understand the benefits to consumers and businesses," said Curtis Stange, chief strategy and operations officer at ATB. "ATB is interested because we believe this technology can improve the experience and improve the lives of consumers and businesses in how they operate."
Though ATB has already used Ripple's network to send money to a financial institution in Germany, Mr. Stange stressed that the Alberta bank was not yet charging full-speed ahead.
"This is very much in the experimental stage. There is still a lot to learn," he said. "The ability to move money bank to bank is really the beginning of proving you can move the payment. The learning will be, 'What does the front-end look like for the customer, in terms of how do they engage with us?'"
Ideally, he added, customers would have a choice in how they move money.
Mr. Larsen said that Ripple's clients are only now moving from an experimental phase to a pilot phase, where they move money among themselves. Next up is the commercial phase, during which the banks would move customer money.
"There is a big market opportunity," he said, though he doesn't expect a swift migration to the new technology.
"What you'd expect to see is the banks integrating it, as they use their existing [money transfer] rails," he said. "But then they'll also have new technologies."