Global businesses face significant headwinds as cross-border payment volumes have recovered to pre-pandemic levels while facing the looming challenges of rising interest rates. Amid these complexities, Ripple Labs’ latest insights into the changing economic landscape reveal its cryptocurrency-based payment solutions as a countermeasure.
Main problematic points of the economic scenario
In its recent exploration, Ripple delved into the repercussions of rising interest rates, focusing on its impact on both banks and global businesses. The New Value Report 2023 states that “nearly half of the companies surveyed cited high interest rates as the main challenge for cross-border payments.”
With a diverse global impact, changes in interest rates can put pressure on companies, regardless of their geographic base.
Three crucial points are included for companies in the current economic environment. First, there are currency fluctuations that harm growth. According to Ripple, the intertwined relationship between cross-border payments and local currency conversions cannot be ignored.
The Ripple report emphasizes how interest rate increases could increase the “chances of price instability” and worsen the unpredictability of international transaction costs. They noted the potential for higher losses and stated that “this potential for higher losses may discourage investment activity and economic growth.”
Secondly, fintech highlights the rising cost of credit worldwide and the reduced liquidity situation. A 2022 C2FO survey highlighted in Ripple’s keynote highlighted that a bank’s line of credit or term loan remains the predominant source of working capital for most businesses.
This liquidity supports the efficiency of cross-border transactions. But there is an alarming note of caution: “as interest rates rise, so does the cost of borrowing, resulting in a reduction in overall liquidity in the financial system and higher cross-border transaction expenses.”
Third, Ripple addresses unequal access to financial services. Regional disparities in interest rates can inherently lead to inequalities in access to essential financial services, such as cross-border payments, especially for growing businesses or in developing economies.
Ripple highlighted the pressing challenges faced by companies in regions with high interest rates, which often hinder their ability to engage in international trade or explore markets.
Advantages of Ripple payment solutions
Given the aforementioned challenges, Ripple is pushing the narrative that blockchain can emerge as a quintessential resource for reliable, efficient and globally accessible payments.
Your justification? Deciphering and debunking common crypto myths and harnessing the potential of “blockchain-enabled payments” could allow businesses to offset liquidity impediments created by rising interest rates. This extends to a variety of payments: from global treasury payments to supplier agreements.
Ripple defends its cryptocurrency-based payment solutions by highlighting key features: “With Ripple Payments, customers can access greater working capital with reduced pre-funding requirements, upfront pricing, and no hidden fees.” These solutions promise to settle transactions in seconds, with an almost non-existent failure rate.
Furthermore, the versatility of Ripple’s solutions is manifested not only in reducing costs and increasing efficiency, but also in paving the way for business expansion. A compelling claim made by Ripple is the ability for companies to “leverage a payments network that represents more than 90% of the foreign exchange market,” making it easier for companies to venture into new payments corridors, even those considered challenging.
Given the strong growth of the sharing economy (with projected outlays reaching a staggering $298 billion by 2023 and a freelance workforce of 915 million), micropayments’ importance and geographic reach becomes even more pronounced.