Ripple and Fidor

Ripple and Fidor just changed cryptocurrency forever

When I saw the headline on Coindesk claiming that a German Internet bank implemented ripple, I thought the following in this order:

1) It’s a joke.
2) Ripple really will change the world of finance.

Of course, I’ve always believed No. 2, but there’s a deep cavern between concept and hard-knock life. With Fidor’s adoption of the ripple protocol, concept has become reality. Fidor’s now able to move money around the world for practically nothing. That puts the bank at a distinct competitive advantage. In fact, I’m surprised the company’s stock (F5R:GR) hasn’t reacted favorably. I presume that’s because most investors don’t understand the implications of free (or nearly free) money transfers.

I’ll go on the record and say this is the most significant development in the cryptocurrency space since the release of bitcoin. I’m not alone in thinking this is a pivot point in history.

“Today’s news that German online bank Fidor is incorporating Ripple Labs’ blockchain into its operations is, without question, the most significant development in the cryptocurrency space this year,” writes Preston Byrne, a fellow at the Adam Smith Institute and associate at Norton Rose Fulbright LLP in London.

The future of ripple

Just two short months ago, Ripple Labs CEO Chris Larsen went onstage at CoinSummit San Francisco and laid out his goals for ripple in 2014. It’s simple: he wants to get one major bank on his protocol in 2014. Fidor probably doesn’t count in his mind. The bank’s currently losing money and has a market cap of $43 million EUR ($59 million USD). The 70th largest bank in the world right now (per is Banco Santander in Brazil with a market cap north of $21 billion.

Even regional U.S. banks have market caps in the tens of billions of dollars (i.e. Fifth Third Bancorp, which is headquartered in Cincinnati and operates in the Midwestern and Southeastern regions of the United States, has a market cap of $17 billion).

I’m not trying to paint Fidor as insignificant, but rather pointing out that Larsen’s work is just beginning. He wants to land a major bank. At the very least, that means landing a bank with brick-and-mortar branches (which Fidor doesn’t have).

And yet, the significance of landing Fidor can’t be underestimated. In the words of one commenter on Coindesk: “(It’s) one small step for Ripple … one giant leap for mankind.” As Byrne points out, this experience will give Ripple Labs the ability to “work out the practical commercial issues involved in deploying decentralised/polycentric smart contract platforms in more mainstream banking applications.”

Ripple Labs now has a working platform to demonstrate to other banks. Transaction volumes on the ripple network should start to climb significantly, and Fidor’s going to put significant pricing pressure on competitors. That will force them to adapt, and I’m unaware of any legitimate products on the market that can do what ripple does. Even bitcoin (which I’ll grant as utterly transformative) can’t compete courtesy of its 10-minute block time.

So, the move doesn’t just put pressure on banks. It also puts pressure on the bitcoin community. Bitcoiners like to tout cryptocurrency as an alternative to the modern financial system. So long as it competes rather than integrates with mainstream banks, it’s going to remain a bit player (pardon the pun).

My predictions for ripple

Now that Fidor’s on board, the next logical step would be integrating with other major online banks. Candidates include Ally Financial (NYSE:ALLY), First Internet Bancorp (NASDAQ:INBK) and perhaps Capital One Financial Corp.’s (NYSE:COF) former ING Direct operations.

Landing any of those banks would introduce the ripple protocol to the U.S., which has to be one of Larsen’s primary goals. If Ripple Labs can catch any of those fish, I’d look for them to ease into companies that mix online and brick-and-mortar operations. The one bank that immediately jumps to mind is Everbank (NYSE:EVER). It’s a predominantly online bank which operates 14 branches in Florida and has a market cap of $2.31 billion.

If they can tap the brick-and-mortar banks, it’d be just a matter of time before other banks join the fray. It’s not inconceivable that they’d have the ammo to land a bank that’s a household name at that point (say a Citigroup, Chase or Bank of America).

Once a major bank jumps on board, their competitors would, too. As I’ve written before (see my post Ripple aims to destroy the ACH system), the current financial system is on the verge of collapse. It’s antiquated, costly, and incapable of evolving quickly enough to meet cryto’s innovations (want proof? NACHA rejected expedited ACH payments in 2012 despite fervent protestations from a host of banks).

Ultimately, everything comes down to dollars and cents. The bitcoin community might not admit that, but ripple embraces it, and banks will as well. The opportunity to drastically slash costs, boost profits and ditch antiquated payment processors is too enticing. It’s the promise of ripple, and Fidor’s proof that it’s finally happening.

Photo credit: Fidor Bank

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  2. Joseph Cartwright

    In your article, you state “Ultimately, everything comes down to dollars and cents. The bitcoin community might not admit that, but ripple embraces it, and banks will as well.” Can you explain the context behind why the bitcoin community might not admit that?

    • Fred Marion
      Fred Marion

      Hi Joseph, you’re right. I should have explained that more. I think a big part of the bitcoin community unfairly dismisses ripple because it was “premined.” Even calling XRP “premined” is a bit misleading, though, since XRP is a math-based currency rather than a cryptocurrency. Mining doesn’t apply to XRP.

      From the start Ripple Labs has operated as a for-profit company and founded itself with 25 billion XRP (with the other 75 billion going to investors or earmarked to be given away). Many in the bitcoin community view that as antithetical to the spirit and purpose of cryptocurrency. It may not align with the values of bitcoin’s creators, but that doesn’t make it any less valid. In fact, I view ripple’s funding model as one of the keys to its success. Ripple Labs’ approach will certainly enrich the company’s founders if ripple succeeds, but it also gives Ripple Labs much-needed cash to fund development. It also gives venture capitalists and investors a very simple way to invest in the technology (and it’s how Ripple has raised more than $6 million). In some ways, XRP operate like shares for investors right now. It’s actually pretty brilliant.

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    • Fred Marion
      Fred Marion

      Ripple’s probably going to be down for a while with one of the founders selling his 9 billion XRP. Once that’s completed, I expect it to continue its upward climb. I guess we’ll see!

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