Firms Like Ripple May Put ‘Competitive Pressure’ on Traditional Indian Banks: EY

Traditional Indian financial institutions may face “competitive pressure” from blockchain-based platforms, including Ripple, in areas such as cross-border payments, according to a new paper on blockchain technology and competition from consultancy Ernst & Young (EY) for the Competition Commission of India (CCI).

“Theoretically, it is expected that once blockchain applications cross the pilot and proof of concept stage, they will compete with other systems/technologies providing similar services that may not be based on blockchain technology,” the authors of the paper wrote, adding: 

“This is already being experienced to some extent in the financial services sector where blockchain technology was first applied. An example could be the market for providing cross-border payments where traditional banks may have to compete with solutions such as Ripple.”

The authors suggested that because Ripple is faster, less expensive and more transparent it could put “competitive pressure” on India’s traditional banking system.

Blockchain payments company Ripple offers services across 55 countries, according to the firm. It has also positioned its cryptocurrency, XRP, as a “neutral bridge” to link various central bank digital currencies, as it detailed in a recent white paper. 

Regulatory scrutiny in the US and India 

In the U.S., Ripple has recently been embroiled in a lawsuit brought by the Securities and Exchange Commission alleging it violated securities laws by selling XRP to retail consumers because the regulator considers it a security. A recent op-ed from the editorial board of The Wall Street Journal criticized the regulator for “creating danger for currency developers and retail investors” and the “inconsistency” of its approach, given that bitcoin and ether are exempt from the same rules. 

“The market considers them similar. We consider them similar,” Ripple Chief Technology Officer David Schwartz said on CoinDesk TV earlier this month, speaking of XRP and bitcoin. 

The authors of the EY paper noted that in India, cryptocurrencies “have received a great deal of regulatory attention over the past several years, culminating in a recent recommendation by an inter-ministerial committee to ban trading and holding of cryptocurrency.” 

The Reserve Bank of India, the country’s central bank, barred domestic banks from “dealing with cryptocurrency firms and their exchanges” in 2018, they continued, with petitions going up to the Supreme Court to rescind the ban. The court ruled against the RBI in March 2020, but Indian government officials have continued to consider moving against cryptocurrencies.

Despite these legal actions, some Indian state governments have worked to implement blockchain technology for various applications, including land ownership records and birth certificates, according to the paper. There have also been blockchain-based pilot projects and proofs of concept in sectors such as tech, health care and agriculture in the country.