What will happen when Ripple replaces ACH and SEPA?


Just this spring, I wrote a post titled “Ripple aims to destroy the ACH and SEPA systems.” Ripple Labs out-smarted me, though, when news broke earlier this month that Ripple is joining NACHA. For the uninitiated, NACHA (previously the National Automated Clearing House Association) is the very non-profit that operates the Automated Clearing House (ACH) network.

Rather than take on mainstream finance, Ripple’s looking to partner with it, and it’s perhaps the smartest move I’ve seen the network make to date.

The implications of the move are hard to understate. If Ripple’s successful at re-building the ACH process on the ripple protocol, it’ll position itself as one the most integral parts of the global financial system.

In 2012, ACH volume in the United States increased by 4.19% to 21 billion transactions, NACHA says. And that’s just in the U.S.!

Transaction volume’s just a small part of the puzzle, though. The beauty of the Ripple protocol is the fact that it makes transactions nearly instantaneous. How? It doesn’t require the centralized gatekeeper-like system that ACH uses. Every Ripple transaction is verified on a public ledger, and that process takes seconds. It also operates 24/7. ACH transactions on the other hand are limited by Federal Reserve rules requiring interbank transfers to stop each day at 6pm ET.

0.000010 XRP are destroyed with every transaction processed on the ripple network. That means that if ACH switched to the ripple protocol and processed 21 billion transactions a year, ripple would be destroyed at a rate greater than 100,000 per year just in the U.S.

In my mind, ACH volume would increase dramatically, too, as the costs of doing business would force others onto the ACH platform. It’d also mean that since banks wouldn’t have to deal with ripple, they’d move onto the platform seamlessly. Ideally, adoption by NACHA would also encourage banks to use the ripple platform to process cross-currency transactions and maybe even offer consumer wallets in XRP. If that happened, ripple would make a major step toward going mainstream (and I’d probably ask my employer to start paying me in XRP!).

Brilliant stroke by the brilliant folks at Ripple Labs. Now, let’s just hope they can convince NACHA to change.

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