On Monday (29 October 2018), Ripple's Director of Product, Craig DeWitt, on the sixth episode of "The Ripple Drop" (Ripple's web video series), talked with producer/editor Reinhard Cate about RippleNet’s multi-hop feature, and explained what benefits it offers.
Multi-hop is a feature of the Interledger Protocol (ILP). On Friday (28 September 2018), as reported here, Ripple announced via a post on its "Insights" blog that Siam Commercial Bank (SCB), Thailand’s first domestic bank (founded in 1906), had become the first financial institution on RippleNet to use this feature.
Craig's Interview With Reinhard
Q: What is multi-hop? How does it work?
"Well, first off, multi-hop gives RippleNet members the ability of transacting with banks or payment providers or digital wallets that they don't have a direct relationship to. That's so important because in today's world, you need a bunch of bilateral relationships clunkily put together in a chain in order to move money. That means A has a relationship with B. B has a relationship with C. And they have to hand off information like playing a game of telephone. Multi-hop makes that a thing of the past."
Q: So, who on RippleNet is using this feature?
"So, a couple of weeks ago, we announced that Siam Commercial Bank was using multi-hop. And what that means is that they are allowing customers to facilitate payments through Siam Commercial Bank into Cambodia, Laos, Myanmar, Thailand, and Vietnam. So, the sender has the ability of getting deep reach and deep access into this entire region, and the receiver has the ability of getting payments with more value in them because the fees are less with complete visibility and transparency."
Q: And is this relationship both ways?
"Yeah, that's exactly right. So, one of the great things about the technology that underpins this is that it works like the internet works. Information can go both ways. So, Cambodia can facilitate payments outside of that relationship back into RippleNet. Very much how the internet works today. So, like the internet, there's a lot of paths for getting your money or your information where it needs to go. So, one of the things that multi-hop allows are multiple quotes being returned to the user, and those quotes will have different paths of payments that are available. So, you can choose based on the cheapest path or the fastest path, and make sure that you're able to deliver your customers the type of experience they need. And what's great about this is that some of these paths, what we're seeing already in terms of the tests that we're doing, are the cheapest and the fastest when they go through xRapid.
What David Schwartz (Ripple's CTO) Has Said About Multi-Hop
Multi-hop allows customers who initiate payments w/ xVia to have 1 pile of fiat, typically with an xCurrent customer, that they can use for payments across RippleNet. Still need to acquire the destination asset to settle a payment though, and that's where xRapid and XRP come in.— David Schwartz (@JoelKatz) September 28, 2018
Looking at it from the other side, multi-hop lets xCurrent customers act as hubs for incoming and outgoing payments to and from regional banks that they have good fiat settlement arrangements with. Others could also use xRapid to pay into and out of the hub's partner banks.— David Schwartz (@JoelKatz) September 29, 2018
And this is what he means by "regional banks":
I mean RippleNet members that have good fiat settlement rails with the hub bank. The idea is that correspondent banking with a modern payment system works well between banks that can already easily settle. Then the cluster of banks becomes like a single endpoint from outside.— David Schwartz (@JoelKatz) September 29, 2018
David explains the significance of multi-hop:
It's an expansion of reach. With multi-hop the set of available endpoints is greater than it would be without it. Getting xRapid to connect to a region is better than getting xRapid to connect to a bank.— David Schwartz (@JoelKatz) September 29, 2018
Some banks may just not be willing to become an xRapid customer for various reasons such as regulatory or just international payments not being that important to them. Multi-hop means they can use other xRapid instances to settle their payments and still get many of the benefits.— David Schwartz (@JoelKatz) September 29, 2018
What Dilip Rao (Global Head, Infrastructure Innovation) Has Said About Multi-Hop
Why @Ripple Multi-hop is important— Dilip Rao (@diliprao) September 29, 2018
‘Multi-hop’ on RippleNet solves for (1) reach and (2) liquidity with (3) lower risk than via traditional correspondent banks today. (1/4)
A ‘multi-hop’ transaction consists of coordinated debits and credits on the ledgers of three or more banks in a chain, from sender to ultimate beneficiary. (2/4)— Dilip Rao (@diliprao) September 29, 2018
@Ripple Multi-hop for reach: Banks don’t do business with banks they do not know (due diligence and account opening can take 6-9 mths!). Multi-hop enables a bank to connect indirectly (via a bank they share accounts with) to many more they do not know. (3/4)— Dilip Rao (@diliprao) September 29, 2018
Multi-hop for increased liquidity: An intermediary ‘hub’ bank acts as a ’connector’ as well as an ‘exchange’ to deliver funds at the next bank in a chain, perhaps in a different currency (for a fee).— Dilip Rao (@diliprao) September 29, 2018
While this works with fiat today, the use of XRP would enable intermediaries to expand their delivery network without holding piles of fiat all over the world. Holding a universally convertible digital asset is more optimal (forecasts for might be 5-20% wrong).— Dilip Rao (@diliprao) September 29, 2018
Multi-hop for lower risk: Since all banks in a multi-hop chain can see all transaction data and approve each after screening, AML/CFT risks can be better managed. Since ALL legs of an ‘atomic’ transaction settle at the same time, no bank is exposed to credit risk at another.— Dilip Rao (@diliprao) September 29, 2018
Featured Image Courtesy of Ripple