As technology transforms major sectors of the global economy, the financial system that underpins it all has fallen behind. In this episode of Mastering Innovation on SiriusXM Channel 132, Business Radio Powered by The Wharton School, Asheesh Birla (WG’10), Senior Vice President of Product at the startup Ripple, describes the archaic system of international exchanges and how Ripple is positioning itself to modernize it. Birla also spoke about this topic at the Mack Institute’s Spring Conference 2018 and in an interview with Wharton Magazine.
Trying to send money to another country? It would be faster to fly there and deliver it yourself. The current financial infrastructure, established in the 1960s, can take days, even weeks to send money from one country to another, sowing uncertainty along the way. Utilizing blockchain technology, Ripple is attempting to overhaul this outdated system for the 21st century. After joining the company in 2013, Birla helped to develop their current product suite with the goal of streamlining international banking. He explains the capabilities of this relatively new technology and the existing problems that it has the potential to solve.
An excerpt of the interview is transcribed below. Listen to more episodes here.
Saikat Chaudhuri: I want to start by situating our listeners to give some background about the power of blockchain. You’re the perfect person to tell us how it could potentially disrupt our financial system, which has been based on decades-old infrastructure processes and technology. Tell us a little bit about blockchain first.
Asheesh Birla: Before talking about blockchain, which can be a complicated topic, I’ll tell you a little bit about how money moves today and why blockchain is so exciting.
The way that money moves in 2018 is the same way money moved in 1960, pretty much using the corresponding banking world. If you want to move money into India, for example, your bank will create a file. They will drop it on an FTP server and then once a day, once every other day (excluding holidays and weekends), they will process your payment and send it to the next bank in the chain. Then they will process the payment and it eventually gets sent to India. That process takes three to four days. Money gets lost all the time. You have no visibility when it gets paid to whom. It’s nerve wracking. Did your money get there or not? You don’t know in 2018.
The fastest way to get money to India is probably to get on the Newark non-stop United flight to Delhi and deliver it in a briefcase. The reason is that these banks don’t trust each other; they have to open accounts with each. They have to buy the rupees ahead of time and hold them. There’s this trust issue, and the archaic technology from the 1960s is essentially why it’s so complicated to send money. Now comes the blockchain. In 2013, I started looking at Bitcoin. For the first time ever, I can send value to anyone with the internet within seconds using Bitcoin technology. I don’t even have to know the other person. I don’t have to have several banks in the chain to trust anyone, but I can move value using this technology from one person to another or one corporation to another globally. I thought that was revolutionary. Decades-old technology is going to be replaced by this blockchain technology to modernize the world of payments and modernize commerce globally.
“The fastest way to get money to India is probably to get on the Newark non-stop United flight to Delhi and deliver it in a briefcase.” – Asheesh Birla
Chaudhuri: Very powerful example. Now Bitcoin, of course, comes with a certain amount of baggage, if you will. What you guys are doing is very powerful and extends beyond that.
Birla: Bitcoin was the spark. There are going to be use cases for Bitcoin. What we realized is that, one, the actual blockchain technology is something called settlement. That means that at the end of the day, you want to make sure that the value is transferred to the end destination. Moving money globally is more than just settlement. For example, you must ensure who this payment is going to, so that you comply with local regulations and laws. All that information also needs to exchange with the payment. What we realized early on is that cross-border payments are the pain point that we want to solve with this technology.
Secondly, if you want to stay compliant and you want to make sure that you’re working with the regulators, you also must solve the communication problem of information across the different countries and financial institutions that you’re going to bring together. FTP servers and sending files every night just isn’t going to cut it in a world where you can buy things from Amazon across the world and you need to pay the merchants that could be in India or China or any place that’s connected to the Internet. We needed to not only work on the settlement piece, but we also need to make sure that we’re modernizing the communication piece as well.
Chaudhuri: That makes a lot of sense. You mentioned the regulators; what’s interesting is when we conceive of disruption or change, we think of a startup that comes in and displaces an incumbent. In this case, you guys work with so many established firms and with the regulators. I see it much more as creating some sort of ecosystem for these transactions to take place.
Birla: That’s a good point. We were a little bit the black sheep in 2012 and ’13 when we started working with the regulators in financial institutions. The folks in blockchain at that time were saying, “Hey, this technology is going make those parties obsolete,” and I’m like, “I don’t think that blockchain is going to make governments obsolete.” At the end of the day, I still have to pay my taxes to the IRS or whatever country I belong to.
Early on, we wanted to make sure that Silicon Valley has this mantra about disruption. Our founder and the early team at Ripple was about constructing using innovative players and bringing regulators along. We thought, let’s construct and build a better financial ecosystem for moving money. That has paid off tremendously. Blockchain companies today have changed their tune. They have to work with regulators. I got a pitch from a blockchain startup yesterday, and they had a $500,000 budget for regulation. That is something that you’re seeing in 2018 that you definitely were not seeing in 2013.
“If you’re marginally better, it’s not enough to adopt.” – Asheesh Birla
Chaudhuri: It’s a new wave and a different way of doing it, but it makes a lot of sense. When you’ve got a fundamental system like the financial system, you can’t just overthrow it. It’s something which has to be done in a much more regulated and carefully planned fashion.
What’s interesting, which you alluded to earlier, is that on the one hand, you have the financial system which is well developed in the Western markets: the United States, Europe, Japan, and so forth. But a lot of the emphasis that you guys want to place for the future, if I understand it correctly, you’ve been placing on these markets like India and China. There’s a tremendous chance to leapfrog and thereby solve the financial inclusion problem that many of these countries have. Are there certain advantages and disadvantages in entering these emerging markets — which have great promise to usher in a new system that would help the population — but at the same time may be underdeveloped in other ways or have other challenges?
Birla: That’s a great point. I’m the head of product at Ripple. As a product manager, what you need to do in an innovative space or a startup is to think about what’s going to be a ten times better experience for your customer. We’ve found that if you’re marginally better, it’s not enough to adopt. You use the word “leapfrog”; the developing world will leapfrog because the technology that they’re used to is probably even older than the Western world. I can bring in this technology and it will be a twenty times better experience than the one they have today. We were finding that mobile has transformed a lot of the emerging markets. They’ve kept getting broadband to their house in a lot of ways. They’ve moved directly to the mobile frontier. That gives us a digital-first native, a very young population that’s ready to start connecting with the rest of the world in the e-commerce opportunities that are out there.
About Our Guest
Asheesh is the SVP of Product at Ripple, which he first joined in 2013 to lead the development of their product suite. Asheesh is an industry expert on blockchain and is a frequent contributor, speaker, and advisor on blockchain and cryptocurrency. Asheesh started his career as an entrepreneur 15 years ago in Silicon Valley, where he founded a content management company that he later sold to Thomson-Reuters, becoming their VP of Global Technology in 2005. After leaving Thomson-Reuters in 2010, Asheesh advised and led product design at a number of startups in Silicon Valley.
Mastering Innovation is live on Thursdays at 4:00 p.m. ET. Listen to more episodes here.