Ripple’s XRP Isn’t Making Western Union’s Payments Cheaper, CEO Says

June 13, 2018, 9:15 PM UTC

Since Western Union began testing a cryptocurrency from Ripple called XRP for payments six months ago, the money transfer company has yet to see a financial benefit.

Ripple has long touted its blockchain technology—and the cryptocurrency XRP, of which it still owns a majority—as a faster and cheaper way to move money internationally. But Western Union CEO Hikmet Ersek said that while his company is still experimenting with Ripple’s product xRapid—which uses XRP as a conduit to transfer money between foreign currencies—for payment settlements, it has not saved money so far.

We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests,” Ersek told Fortune in an interview Wednesday at the Economic Club of New York.

“The practical matter is it’s still too expensive,” Ersek added, noting that Western Union would only be interested in adopting XRP for payments if it proved that it could lower the company’s costs.

That assertion could amount to a setback for Ripple, which has built its business—and turned the cryptocurrency XRP into the third most valuable on the market, worth more than $20 billion—on the potential advantages its technology offers over other payment methods.

Still, Ersek cautioned that the pilot may be too early on and “too small” to draw conclusions, as Western Union has only tested the cryptocurrency for transfers between two currencies—U.S. dollars and Mexican pesos—so far.

Indeed, Western Union has sent just 10 payments using xRapid to date—far too few to reap significant results, according to Asheesh Birla, Ripple’s senior vice president of product. Although the experimental phase is about six months along, it took much of that period for Western Union to lay the internal groundwork and allocate resources for the tests, “so the actual pilot was only a matter of a week or two,” Birla explained.

“If they were to move volume at scale, then maybe you would see something, but with 10, it’s not surprising that they’re not seeing cost savings,” Birla said. “They do millions of transactions a month, and I’m not surprised that with 10 transactions it didn’t have earth-shattering results.”

Birla calculates that if Western Union were to expand the pilot to all of its payments, the firm would cut down on at least 50% of costs per transaction. Moreover, Western Union’s foreign exchange costs have also “been on average better than what they normally see,” Birla added.

The problem, Birla explained, is that Western Union is still “straddling” both legacy costs from transferring money the traditional way—including maintaining staff abroad for treasury operations and other functions—which are eating into the benefits they’re able to see with xRapid: “Unless you’re going to take those fixed costs out of the ecosystem, it’s not going to be worth it for them to move on.”

Ripple said last month that in pilots of xRapid by companies including Viamericas and Mercury FX, the technology had reduced costs by 40 to 70%.

Ersek, for his part, isn’t ruling out that blockchain technology could lead to lower costs for Western Union, noting that he is currently committed to its program with Ripple.

“I don’t want to kill it,” Ersek said of the partnership, adding that the Ripple team working with Western Union “are good people” who are “very innovative.”

The pilot program has also been a positive sign for some cryptocurrency investors who have viewed Western Union’s payments transfer tests with Ripple as a boon to digital asset XRP.

Most financial firms testing blockchain-based payments via Ripple have opted to use its software product, xCurrent, which functions without using XRP, rather than the firm’s XRP-reliant technology, xRapid. That preference has raised doubts about the cryptocurrency’s viability—helping push XRP’s value down 77% in 2018 to 50 cents.

Western Union’s experience underscores a major hurdle the blockchain and cryptocurrency industry will have to overcome in order to gain widespread adoption in existing institutions: Explaining why it is superior to existing payment tools. Western Union’s own payments transfer system is “so efficient,” Ersek says, that “to replace that with a blockchain” has not yet yielded meaningful improvements.

Currently, to facilitate digital payments, Western Union uses a 10-digit “money transfer control number,” a code that corresponds to an individual payer or receiver, which Ersek likened to Western Union’s own digital currency. The company first implemented it in the early ’90s, he said.

And in that sense, “We have the cryptocurrency definitely more than 30 years,” he said.

This article has been updated to further clarify the timeline of Western Union’s Ripple experiment.