On Friday (28 September 2018), cross-border payments solution provider Ripple announced via a post on its “Insights” blog that Siam Commercial Bank (SCB), Thailand’s first domestic bank (founded in 1906), has become the first financial institution on RippleNet to use the ‘Multi-Hop’ feature.

SCB was established by royal charter on 30 January 1906 as the first Thai bank. It was founded during the reign of King Rama V, and it was “the brainchild of Prince Mahisara Rachaharuthai, who earned the sobriquet ‘Father of Thai Banking’.” Today, it is the third-largest bank (by total assets) in Thailand.

Although management of global liquidity is a long-standing problem in the area of cross-border payments, it is especially noticeable in the ASEAN (Association of South Eastern Asian Nations) region, which does not have that many correspondent banks. This has meant that sending money to the ASEAN countries (Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) has been expensive.

Today, SCB became the first member of RippleNet to make use of RippleNet’s “multi-hop” feature, which allows one financial institution to settle payments on behalf of another financial institution. This obviates the need for a bilateral relationship (i.e. “a direct one-to-one connection”) between financial institutions for the purpose of payment settlement. This important feature of RippleNet will allow SCB to “receive and forward on a payment without a bilateral relationship between the originator and beneficiary institutions.”

Currently, since there is no standard integration in the ASEAN region, neighbouring countries “relying on the correspondent banking system have to first convert currency into U.S. dollars, then settle across multiple correspondent banks before finally being exchanged to the currency used at the beneficiary institution.” Because of the expense associated with such work-arounds, “there is little to no support for the low-value payments that small to medium enterprises (SMEs) and remitters need to make.”

Multi-hop technology means that SCB can provide “a seamless payments experience into and out of the ASEAN region” (by settling and paying out across this region without the need to exchange currencies multiple times). This feature makes it possible for smaller financial institutions to send payments to the ASEAN region even if the payment amounts are small or if these financial institutions do not have deep pools of liquidity.

Finally, it is not just financial institutions that can benefit from the multi-hop feature: customers of RippleNet members will be able to enjoy faster, cheaper, and more transparent cross-border payments.

Perhaps, it is best to let David Schwartz, the Chief Technology Officer of Ripple, to explain the multi-hop feature:

Schwartz then explained what he means by “regional banks”:

He then continued to explain the significance of multi-hop:

Another nice summary of why multi-hop is such a big deal comes from Dilip Rao, Global Head, Infrastructure Innovation at Ripple:


Featured Image Courtesy of Siam Commercial Bank