The state of global settlement is unsettling: There is an increasing disconnect between the world that existing clearing and settlement systems were designed to serve, and the actual needs of finance, enterprise, and people today.
Consider some current challenges that need fixing:
- High global transfer costs are stifling growth for small and medium-sized companies that need to transact quickly with customers
- International firms must absorb high fees to pay their cross-border freelance talent, impeding their access to the global gig economy
- Remittance from the United States carries a significant price tag, with average handling fees on a transfer of $200 being approximately 5.4%—and as high as 15% for transfers from South Africa—siphoning away funds desperately needed by families
- A non-American investor must have an American brokerage account and US dollars before they can purchase Apple shares
- An active cryptocurrency trader has to open accounts on multiple exchanges and reserve multiple positions—a problem not encountered by equities traders
From traders and digital asset exchanges to the banks and institutions that provide essential cross-border remittance services to their customers, to broker-dealers trading securities and commodities, the search is on for a better way to clear and settle payments and asset transfers. For example, inter-bank remittances in some developed countries today can be completed instantly, while cross-border remittances still take 3-5 days. Due to the lag introduced by each mainstream fiat currency having an independent cross-border payment settlement system, cross-border remittance can only be achieved through multiple agency banks located in different countries.
And then there’s the cost: A 2016 study from McKinsey & Company shows it costs $25 to $35, on average, for a US bank making cross-border remittance through an agency bank—more than 10 times the average cost of a domestic payment. The breakdown:
- 34% of the remittance cost goes to the nostro-vostro liquidity (cost of banks holding accounts with other banks)
- 27% goes to treasury operations
- 15% to foreign exchange operations
- and 13% to compliance.
Another key feature of today’s monetary system is that fiat currencies are restricted by borders. With multiple fiat cross-border payment settlement systems coexisting, logistical barriers to international remittances have also increased.
Put plainly, cross-border remittances require multiple steps, are time-consuming, unreliable, and costly. Although trillions of dollars worth of transactions are settled daily with legacy technologies, the financial world should be doing much better. Old networks and platforms could be settled faster, more efficiently, and less expensively than they are now.
As the bookkeeping that constantly takes place between institutions, clearing is an essential mechanism in domestic and international finance, with settlement standing as the actual asset transfer that can subsequently take place. The technology has arrived to start a new phase in clearing and settlement—are the minds who manage fintech ready to implement it?
Resetting Global Settlement
To move forward, it’s important to understand the bottlenecks that have gradually grown up around settlement. As a necessary trade component, it’s understandable that dated tech and traditions are still hanging around—obsolete infrastructure that at one time was state of the art, but now lags modern financial technology approaches. However, with the evolution of newer platforms such as blockchain and distributed networks, global settlement is ready for a reset.
The best-known names in global settlement today are entrenched organizations that served their clients—investors, banks, and enterprises—reasonably well for several decades. They certainly have the volume to show that they’ve earned a place in international finance: The Depository Trust and Clearing Corporation (DTCC) processes trillions of dollars worth of securities daily; the Society for Worldwide Interbank Financial Telecommunications (SWIFT) clears five trillion dollars a day; meanwhile, the Clearing House Interbank Payment System (CHIPS) is responsible for another 1.5 trillion dollars of interbank payments in cross-border and domestic settlement daily.
Built as they are to accomplish different missions, and working on dated backends, it’s not surprising that DTCC, SWIFT, and CHIPS are approaching a crossroads. A quick overview of these entities:
- DTCC, launched in 1973, stands as the world’s largest financial after-market service organization, providing custody and settlement of securities such as stocks and bonds.
- SWIFT, founded in 1973, is the world’s largest international interbank clearing system, operating a global financial messaging network.
- CHIPS, with roots dating back to 1853, is one of the world’s largest payment and clearing systems, primarily focused on clearing cross-border USD transactions.
While each of these entities addresses its own sector of global finance, they all share a common purpose: to streamline procedures necessary for successful settlement, reduce costs, and increase reliability. However, issues that reduce the effectiveness of today’s settlement establishment abound.
To operate, DTCC, SWIFT, and CHIPS navigate a complex web of multiple currencies, platforms, regulations, and markets that coexist without cohesion or a clear path to international interoperability with one another. The advent of the Internet has been helpful to link all the players, but the Web on its own is an insufficient connection, supporting a slow and costly structure where asset transfer is often measured in hours or days.
Ripple, introduced in 2012, is a settlement system, currency exchange, and remittance network built on a distributed open-source protocol, intends to make a dent in this problem. Ripple looked to blockchain technology to solve the banking industry’s pain points, including the reliability issues, slow transaction times, exposure to fiat pair volatility risk, and high operational costs of cross-border payments. However, actual uptake for the RippleNet global payments network has been slow: The volatility of its XRP cryptocurrency has made banks apprehensive of employing XRP beyond its XCurrent messaging tech.
All told, there are more than 200 countries with more than 200 fiat currencies, tens of thousands of stocks, tens of thousands of banks, hundreds of traditional asset exchanges, hundreds of public chains, thousands of tokens, and tens of thousands of digital asset exchanges in the world. However, their isolation from each other prevents assets from being freely transferred between these fragmented markets and countries. The Internet moves information instantly around the world today, but value transfer still must overcome many obstacles.
What’s needed now is a next-generation paradigm: A new, unified clearing and settlement network that makes global asset transfer instantaneous and more reliable.
Introducing Roxe: The Global Value Network
With the introduction of Roxe Chain technology, the Roxe Chain Foundation offers new infrastructure that Third-Party Application Providers can use to build global networks that will bring instant global clearing and settlement to banks, payment companies, remittance providers, and trading platforms.
Roxe Chain Foundation’s Mission is to create a global value exchange infrastructure that accelerates the worldwide transfer of value to match the near-instantaneous speed at which information now flows over the Internet. Consumers and institutional finance professionals are clamoring for a value exchange system that does away with the friction, fees, and inconvenience currently associated with global asset transfer — for both traditional and digital assets.
Apifiny Inc. is licensing Roxe Chain technology to deploy a fully coordinated clearing and settlement network between banks, payments platforms, remittance companies, digital assets exchanges, and trading institutions. Called “Roxe Global Instant Settlement Network,” it takes the best of blockchain technology–with its powers of speed, security, and scalability–to enable instant value exchange while eliminating the volatility-inducing influence of an exchange-traded cryptocurrency from the picture.
With the maturation of blockchain technology, the financial account paradigm has evolved into the token paradigm. Free from traditional account systems, blockchain technology enables users to execute peer-to-peer direct value transfer between each other. Blockchain technology has been used to digitize traditional assets such as fiat currency, securities, and commodities, and integrate them into tokens. Blockchain technology can be used to “mirror” virtually any asset, and serve as an Internet of Value — instantly moving value between parties with transparency With these building capabilities in place, blockchain technology can also be used to build a unified instant settlement network that spans systems, asset classes, and markets.
A global instant settlement network built with advanced Decentralized Finance (DeFi) frameworks and technologies, Apifiny’s Roxe Global Instant Settlement Network is poised to make an impact on every sector affected by clearing and settlement, including these three categories:
Traditional finance — different countries and regions are home to numerous global trading markets, banks, currencies, and financial institutions, saddled with outdated regulatory rules and infrastructure.
Cross-border payments — remittances are ready for a recharge, and this is the first category where Roxe will be available for retail and institutional use. International payments are the slowest, most expensive and most unreliable of all payment categories, subject to obsolete and inefficient infrastructure established piecemeal by each country long before the Internet existed.
Digital finance — despite the potential for the nearly instantaneous exchange of value, digital assets have not been easily integrated into the modern banking system. There are thousands of digital currencies and public chains and varying regulatory rules in different countries, which further fragments the global financial system. With more than 10,000 digital currency exchanges worldwide, the digital currency trading market is similarly fragmented and isolated. For example, BTC is listed on thousands of exchanges, forcing active traders to simultaneously access multiple exchanges and transfer funds between them–a capital-intensive reality. Contrast that with access to Apple stock, which is listed on NASDAQ to create one unified market.
Meanwhile, there is no unified clearing and settlement network mechanism or system between digital exchanges, or between digital asset exchanges and institutions, causing low trading capital efficiency—an undesirable consequence of the digital currency trading market’s fragmentation. Even worse is the time required for an on-chain BTC purchase or sale to be recorded on the blockchain: The average on-chain BTC transaction time is over five minutes, far too long for a trader who is buying low on one exchange and selling high on another.
Roxe Global Instant Settlement Network thoroughly updates settlement across all three categories. Its network enables banks, trading markets, and financial institutions to realize guaranteed, fast, and automated clearing and settlement. Any network node can transfer value, clear and settle instantaneously, minimizing the potential risk and friction from exchange rates and regional and business divisions.
The channel for value transfer is Roxe’s dedicated public blockchain, Roxe Chain, which facilitates lightning-fast value exchange.
When comparing Roxe with Ripple, important points of differentiation emerge. The first is that while Ripple is primarily used by banks, Roxe is designed to be used by banks, exchanges, payment companies, and trading institutions. Another major difference is that Ripple transfers value via the XRP cryptocurrency, whereas Roxe Instant Settlement Network transfers value for fiat currencies and cryptocurrencies without relying on a volatile cryptocurrency. These attributes broaden the use case for Roxe Instant Settlement Network, which can accommodate the transfer of value for more asset types.
Reviewing the cross-border payment challenges cited at the beginning of this article, here’s how Roxe solves each of these challenges to save time, money, and effort.
- High global transfer costs are stifling growth for small and medium-sized companies that need to transact quickly with customers: With Roxe, a company like Amazon could leverage Roxe to facilitate less expensive payments between the marketplace, its online vendors, and even end customers.
- International firms must absorb high fees to pay their cross-border vendors and freelance talent, impeding their access to the global economy: Roxe cuts out expensive intermediaries, reducing payment costs.
- An active cryptocurrency trader has to open accounts on multiple exchanges and reserve multiple positions: With Roxe, professional traders can buy on one exchange, transfer assets to another exchange, and almost instantly sell at a higher price on another.
Put simply, while some blockchain entities are attempting to solve all problems with one currency, Roxe is solving one problem with all currencies: By streamlining value exchange between the world’s major banks, financial institutions, and trading markets, Roxe is the next generation global asset instant settlement network.
— Haohan Xu, CEO and Founder, Apifiny