By slicing clutter out of international payments, Ripple managed to turn rivals into partners once before. It hopes a hunger for sharable authentication can make that happen again.
The distributed ledger company has partnered with about 40 companies in the finance, technology and non-profit sectors to launch PayID, a free and open standard designed to replace account numbers that are designed to be interoperable and easier to understand — easy enough that Ripple envisions people typing the account name by memory, something that people rarely do for driver’s license numbers and other common identifiers.
Ripple’s standard could remove the need for two people to use the same payment app for P2P transfers, among other use cases. The PayID standard allows people on different transfer apps to connect with each other.
“Individuals today have more payment applications than ever before, but despite all of the innovation in the space, we haven’t settled on a single standard for sending and receiving money across payment networks,” said Ethan Beard, senior vice president of Xpring, Ripple’s development platform. “This is made more difficult when you consider that individuals also have long, unintuitive payment IDs for each network they use.”
PayID is structured so no single party controls or sets terms for joining, an attempt to encourage the collaboration that’s necessary for interoperable digital ID to work. Thus far, that collaboration has proven elusive as firms have difficulty ceding proprietary technology or data management.
Ripple hopes PayID can cut through that by supporting a blockchain-agnostic standard that connects to both crypto and traditional currency. Partners at launch include GoPay, Blockchain.com, Bitpay, Brace, Flutterwave and Forte.
There are many other digital ID projects that include decentralized systems such as blockchain, with Bank of America recently submitting a patent, Mastercard and Microsoft partnering on a digital ID protocol and national systems such as a Canadian digital ID program that uses blockchain. And the U.K.’s Financial Conduct Authority is pushing self-sovereign ID.
“We are seeing some progress, but much slower than the initial hype indicated,” said Avivah Litan, a vice president at Gartner, adding that as adoption of decentralized finance, cryptocurrencies and stablecoins accelerate there will be more common identifiers that underpin the function of the new business rails. “Identity of things will become much more important, as well as businesses demand to know the provenance and authenticity of the goods they are paying for and relying upon”
Ripple gained traction over the past few years by using its blockchain technology to add speed and cut costs for international payments by removing third parties such as correspondent banks, which extracted fees in exchange for managing currency conversions and other localized tasks.
Banks initially viewed Ripple’s model as competition, particularly to bank-led initiatives such as the bank-supported R3 blockchain network. But banks worked more closely with Ripple in recent years as distributed ledgers have broadened cross-border payment flows beyond large supply chains.
By making PayID an open and decentralized system, Ripple hopes to gain support from the other initiatives and gradually build its network.
“PayID is not just Ripple’s vision. Instead, it is the coalition’s vision to make sending and receiving payments easier. PayID makes it possible to realize this community-driven approach and ensure that money can be transmitted as easily as data,” Beard said.
Ripple also hopes the coronavirus-led move to digital commerce will provide another reason for fintechs, payment companies, financial institutions and merchants to get on board. But that may provide a hurdle as many firms are diverted due to the severity of the crisis.
“PayID is an interesting proposition but I don’t think it will scale up quite easily, at least as long as the effects of the pandemic will shape the dynamics of the economy and force companies to reshape their business models and strategies to survive,” said Enrico Camerinelli, a senior analyst at Aite — though he did say blockchain has become a middleware that facilitates the execution of P2P transactions, regardless of whether the parties trust each other.