There are quite a few interesting trends in the banking sector to take note of. One particular trend indicates how some banks are axing correspondent banking relationships. It appears this is a growing trend as we speak. This also means banks want to rely on others less often, which can herald a grand era for new solutions. Ripple, for example, can benefit quite a bit from these correspondent relationships going awry.
It is not entirely surprising risk-averse banks are making some drastic changes. Cutting relationships with other institutions potentially violating AML and KYC rules is the best course of action. In the cryptocurrency world, issues like these caused a fair bit of issues for Tether and Bitfinex not too long ago. However, this strategy will severely impact the financial sector in developing and poor countries. Globally active correspondent banking relationships have dropped by 6% since 2011.
Correspondent Banking Relationships Are too Risky
This number only grows larger where USD and EUR relationships are concerned. It is a big concern for all affected regions, that much is evident. Reducing the ability to send and receive international payments is not a positive development. Some form of a solution will need to be created to solve this issue. It opens the door for projects such as Ripple to take its rightful place in this sector.
While it is understandable bankers are concerned over US regulators, cutting relationships is not necessarily the best idea. Directly partnering with other banks is no longer an advisable course of action. Using an Interledger system of participating banks is an option well worth considering. Ripple has made this technology available to all banks around the world. Various trials of this technology are taking place, mainly in Asia. It is only a matter of time until we see more of these projects in Europe and the US.
The banking sector is undergoing major changes behind the scenes. The traditional way of sending and receiving international payments is slowly coming to an end. It is time for institutions to focus on blockchain technology and make an impact that way. Whether or not they will embrace Ripple, remains to be seen. The company is the leading blockchain provider for the financial sector, though. The future is looking quite interesting for Ripple and blockchain technology, to say the least.
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