Over the years, every payment network has been trying to be king of all payments. Many traditional payment networks have been trying to enable payment interoperability. They have tried to convince other payment networks to connect through their payment network. But because every provider wants to own the payment network, it has resulted in the fragmented payment networks that we see today. However, it appears like that era is coming to an end with interledger protocol or ILP.
Interledger is basically an open-source protocol that allows payments across different payment networks. This technology makes it possible to connect all ledger types including blockchains, digital wallets, and national payment systems among others. This makes transactions easy for everyone irrespective of your currency or location. With interledger, therefore, it becomes possible to receive payment from any ledger. It is not tied to a specific currency, company or blockchain.
By using connectors, interledger is able to route payment across independent ledgers. Because of this, there are no intermediaries required. This, in turn, reduces costs and time to process cross-border transactions. This is unlike in the traditional payments where transactions, especially, international payments would take days to get to the final recipient. Such transactions also become expensive.
However, sending money with the same payment system is fast, simple, and cheap. But when it comes to payment across different payment systems, it becomes expensive, cumbersome, and slow. ILP is, however, designed to allow interoperability of different payment systems across the world. Because of this, anyone making a payment can do so to anyone quickly and at a minimal cost. There will be no need for both parties to have accounts of the same payment services.
On the other hand, there is no global coordinating ledger or system that interledger protocol relies on to process payment. Since there is no centralized system, ILP reduces the barrier to facilitate payment across independent payment systems. As a result, connectors compete to offer the best rates and fastest speed. Scalability is also possible making it possible for unlimited payment volume.
The aim of interledger protocol Ripple is to ensure that payments are delivered at speed and with certainty. Also, ILP aims at reducing payment costs for the customers and making it cost-effective to make payment across different payment systems. Again, financial institutions will benefit from ILP by making it profitable for them especially the banks. There are also certain benefits that are only enjoyable with ILP such as privacy, scalability, and interoperability.
Visit also this related link: https://en.wikipedia.org/wiki/Payment_system