Mentioning crypto currency to bankers only put question marks over their head ( 
) and it's a pretty bad strategy.
) and it's a pretty bad strategy.Our initial approach was to pitch to FI's to do all their transactions on a public ledger. Most of them saw the advantages, but they didn't like the loss of privacy, scalability, ability to customize rules, and so on. So we changed our approach.
But the opposition to crypto currencies is slowly changing. We're finding that FI's are becoming more and more receptive to crypto-currencies. Being able to use them off-ledger helps a lot. Most of what they're opposed to comes from the blockchain/ledger part, not the crypto-currency part. And, who knows, they may even come around on that part over time.
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But without XRP, how does Ripple solve correspondent banking problem?
There are a lot of different problems all tangled up. You don't have to solve all of them to have a viable product. For example, just the lack of pre-transfer setup is a big enough problem that you could have a viable banking payment product just by solving that. Just the lack of transparency into the status of a payment is a big enough problem.
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An IOU would be like nostro/vostro accounts, and if there is not a direct trust relationship you would still have intermediaries.
Right, and the point of ILP is that the intermediary doesn't have to be trusted, so you can use *any* intermediary. Likely, day one the intermediary for almost all payments will be whatever intermediary it is today. Maybe that's the sending bank's FX desk. Maybe it's a correspondent. So you'll get the setup/transparency benefits, but not FX/intermediary cost savings.
But the point is that you've changed the ground rules. You could argue that the Internet won't really change anything -- the same customers will access the same data, they'll just do it more quickly and in a standardized way. First, that's a big win. But second, once you have a common way to plug customers into data, you can add all kinds of new customers and new data that you didn't have before. Same here. Day one, the funds will take the same rails. But very quickly, new intermediaries and new services will pop up because they have a framework to plug into.
Just as the Internet made it possible for anyone to provide data to any user, Ripple could make it possible for any intermediary to bridge payments between any endpoints.