SAMA, Ripple pilot can save up to $400 mln in crossborder payments: Moody's

The pilot program for crossborder payments by the Saudi Arabian Monetary Authority (SAMA), the Kingdom's central bank, and US-based Ripple will be credit positive for the banking industry, leading to savings of $200 million to $400 million per year, Moody's Investors Service said in a new report.

The success of the pilot, which was signed last week, will lead Saudi banks to improve payment transparency and efficiency, it added.

"Saudi banks will potentially improve their profitability on cross-border transactions by reducing the cost of each transaction, while gaining revenue with higher volume as the customer experience improves with the saving of money and time," the report noted.

Under the agreement, participating Saudi banks can explore a solution for cross-border transactions using distributed ledger technology (DLT, or blockchain), while SAMA and Ripple provide program management, training and other support to banks.

Moody’s estimates that even a 10 percent reduction in the cost of completing and managing a cross-border transaction would translate to savings of about $200-$400 million per year system-wide.

However, the report said that it does not expect an "imminent widespread use" of DLT in cross-border payments, either in Saudi Arabia or globally, despite a successful pilot.

"The pilot program will test the system with a small number of banks and transactions, and allow banks, regulators and the technology incubators to learn and adjust before ultimately adopting the technology for a wider use," the report stated.