As the adoption of Ripple-based solutions is increasing among banks and financial institutions, Ripple is now developing and customizing products that provide solutions to specific problems of certain financial institutions or one specific to the region. The recent addition to this list is the "multi-hop" function that seeks to provide a solution for regions in the world where cross-border payments are inefficient and afflicted with high taxes.
Ripple's "multi-hop": a solution for small financial institutions to increase liquidity
Ripple, being now a partner of all major financial institutions around the world, understands it well that inefficient global liquidity management is the biggest obstacle to cross-border payments in all regions of the world. He also realizes that some parts of the world such as the Southeast Asian region have been largely underestimated by correspondent banks that make cross-border payment difficult despite the best technologies that Ripple can provide. To address this situation and to expand its customer base in areas facing problems like these, Ripple introduced a new product feature called "multi-hop". This new feature now allows smaller financial institutions to settle facilitated payments on behalf of other financial institutions on the network.
The "multi-hop" also eliminates the need for a direct one-to-one connection (or a bilateral relationship) between financial institutions to settle a payment. Using multi-hop will be able to receive and forward on a payment without a bilateral relationship between the originator and the beneficiary institutions.
The lack of a standard integration for regional cross-border payments currently requires costly alternative solutions. Neighboring countries that rely on the corresponding banking system must first convert the currency into US dollars, then settle on multiple matching banks before finally being exchanged with the currency used at the beneficiary institution. This cumbersome process requires numerous taxes, including two series of changes.
The first bank to use this product will be the Siam Commercial Bank (SCB) which, despite being one of the largest banks of ASEAN or the Southeast Asian region, is facing problems with the corresponding bank with its neighboring regional countries. SCB is the oldest and fourth largest commercial bank in terms of total assets, deposits and loans. Understanding the changing times, the bank is adopting digitalisation and plans to reduce its branch network to 1,154 branches to 400 branches by 2020. It also has 108 exchange kiosks and 9,142 ATM networks.
The press release also indicates the advantages that multi-hop can provide to SCB and the ASEAN region. Quote
"With multi-hop, financial institutions can connect directly to SCB, which can pay and pay across the region without changing currency multiple times and adding high commissions, resulting in a seamless payment experience to and from the ASEAN region For small financial institutions that previously did not have the possibility to make payments in ASEAN, multi-hop would democratize access to these countries and facilitate payments, regardless of the size of the payments or the pool of liquidity of their financial institutions. "
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Multi-hop could be of great help to the SME sector and also increase the reach of Ripple
Because this new feature of the product significantly reduces tariffs, democratizes access to countries and facilitates payments, regardless of the size of payments or the pool of liquidity of their financial institutions. The main beneficiary of this product would be the SME sector. Currently, with the traditional banking system, the cross-border payment process is cumbersome (as explained in the previous section) and requires numerous taxes, including two sets of exchanges and leaves SMEs with little or no support for low-value payments that small and medium-sized enterprises (SMEs) must do.
If SMEs can exploit this product well in ASEAN, they will also multiply the scope and the adoption of Ripple as SMEs are a budding sector in ASEAN and it is estimated that up to 60% of the # 39; employment in developing countries, but this number is expected to reach 70% in ASEAN countries.
Will multi-hop functionality help Ripple win customers in territories like ASEAN? Let us know your opinions on the same
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