In order to efficiently manage liquidity for cross-border transactions, Siam Commercial Bank (SCB) will be the first financial institution on RippleNet to trial a key feature called “multi-hop,” according to an announcement released by the project team.
Adopting the “multi-hop” feature will enable Siam commercial bank to easily settle payments on behalf of other institutions that are connected to the network. This means that there is no longer a need for SCB to connect directly with another financial institution before a payment can be completed.
Until now, cross-border payments into regions that belong to the Association of South Eastern Asian Nations (ASEAN) have been inefficient and also attract exorbitant fees.
“Neighboring 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,” explained the report.
In order to meet up with this long process, the institution which initiated the cross-border payment would have to pay a lot of fees and also pass the assets through “two foreign exchanges.”
However, the days for the long protocols will be over since Ripple’s new feature can allow the originating bank to connect directly with SCB. SCB will now receive or settle the payments on behalf of the bank without exchanging the currencies multiple times or charging high fees.
SME’s Will Benefit From New RippleNet “Multi-Hop” Feature
Before now, it was also difficult for small and medium-sized enterprises to transfer funds to and from the ASEAN region. This is because there was low support for low-value payments using the previously existing model and also the fees were way too high for the startups.
Following the adoption of “multi-hop,” Ripple claims that everyone will now seamlessly transfer financial assets.
“It will democratize access to those countries and make payments easier, regardless of payment size or their financial institution’s pool of liquidity,” the team said.
Only time would tell how well this key feature goes down with financial institutions on Ripplenet and also whether it will have a corresponding effect on the value of Ripple’s native currency XRP which has been performing well in recent weeks.