PAYMENTS: Behold RippleGram!

Source:   Ripple    

Source:  Ripple

Fine, we'll talk about Ripple. The partnership between Moneygram and the blockchain startup for using XRP for money transfers hit the media, and we think it's a big deal. As far as we know, this is the first real example of a circulating public cryptocoin intersecting with a western financial firm as an operating tool, which is different from deploying Enterprise blockchain internally (see DAH, Hyperledger, EEA). If so, it is a major win for Ripple and seems like a smart move for Moneygram, which prevents short-term disintermediation by crypto. Good also for the customer, who won't need to understand crypto in order to benefit from it. Bad news for Bitcoin and fully decentralized currencies that hope consumers care to have the coins themselves in a wallet, especially since (1) the fees are lower and (2) the speed of transfer and transaction capacity are higher.

One thing to note about Moneygram is that it was almost acquired by Chinese mega tech firm Alibaba (Ant Financial) for $1.2 billion. But the US government blocked the deal. For the payments industry, many people believe companies like AntFinancial or Wechat, with their embedded billions of users and Artificial Intelligence powered virtual assistants are the future. By that definition, Moneygram is the past -- but it has physical infrastructure, global distribution, and regulatory blessing which is valuable to new entrants. So Moneygram now has two bets: China, which didn't work out, and crypto.  An $80 billion public/private crypto thing is then not a bad back up gamble.

The crypto natives are unhappy. Ryan Selkis (former Coindesk, Digital Currency Group) highlights that to justify the XRP multi billion dollar market cap, one has to believe a series of increasingly low probability events -- from full retail adoption, to banking industry acceptance, to regulator and central bank cooperation, to limited volatility in crypto currencies. Social influencer / trader "Crypto Yoda" penned an essay about XRP being a currency issued by a private company controlling the trust nodes, which is of course more efficient than a decentralized currency burning electricity for manufacturing trust from nothing. In that way, XRP is a philosophical challenger to Bitcoin's attempt to decentralize money movement. 

Another line of questioning is about the separation between Ripple the company and XRP the currency. If we look at RippleNet, this is a meaningful industry consortium focused on solving the international payments problem. We know that the global payments revenue pool is about $1.8 trillion in revenue, of which cross-border business payments is about $300 billion. Remittances are about $30 billion. This is a big market to go after. But Ripple's rentable blockchain network for banks is not the same thing as the XRP currency. The two are not required to be used together, but when combined financial institution cost savings may double from 30% to 60%. The savings comes from not having to maintain bank accounts in multiple currencies across the world in order to effect international money transfer. But on the other hand, XRP does still need to be exchanged from fiat and back into fiat, so local exchanges are needed. Until Moneygram, much of this was a hypothetical. We are excited to see how this develops.

Source:  Autonomous Research  (with help from  Matt O'Neill

Source: Autonomous Research (with help from Matt O'Neill