International payments have had the perpetual challenge of inadequate measures when it comes to managing global liquidity. Though some regions are more drastically affected than others, it remains a pressing issue for most of the regions across the globe.
The association of South Eastern Asian Nations, popularly known as the ASEAN region, is one of the regions facing the serious effects of lack of global liquidity management due to underdeveloped correspondent banking services. An apparent manifestation of this inadequacy is that international payments into ASEAN member countries are one of the most inefficient and highly expensive.
The wake of 29th of September saw a promising step towards resolving most the cross border payments problems associated with the ASEAN region. A Thailand-based commercial bank known as Siam (SCB), has embraced new cross border payment possibilities by incorporating a special Ripple.net-based feature called “multi-hop”, which is believed to power seamless cross border transactions within the region.
In essence, the multi-hop feature will allow the commercial bank to carry out ultra-efficient payment processes on behalf of financial entities within the Ripple.net network. The multi-hop feature will enable the SCB to assume the position of a “middle-bank” capable of receiving a payment from one financial institution then forward it to another at the receiving end.
The absence of an integrated system has had its rather financially disadvantageous implications on cross border payments within the ASEAN region.
Reliance on the current correspondence based system means that for a payment to be processed, a financial institution has to convert the local currency to US dollars followed by a considerable number of transactions between correspondence banks prior to another conversion to the beneficiary bank’s appropriate currency.
The process is evidently slow and places a substantial amount of fees to inflate the overall cost. The result is that cross border payments tend to be limited to huge financial institutions as it is impractical for most low value payments to be conducted. Good examples of heavily affected institutions and individuals are small to medium Enterprises and those in need of remittance, who inevitably find the process too expensive to pursue.
With the advent of multi-hop, involved instructions are able to link directly with the SCB to bypass all the conversions and transactions associated with the current correspondence banking setup. With proper implementation, chances are that the ASEAN region is destined for a remarkably improved and smooth cross border payment experience.
When it comes to small-sized business entities who did not have access to other ASEAN countries in terms of payments, they can now carry out transactions without having to worry about the size of the payment or their respective liquidity pools.
The expected advantages have been projected to tread way beyond respective institutions. This means that the respective individuals or customers subscribing to those institutions will experience the ripple effect of a more efficient, highly affordable and transparent system.
ASEAN remitters now have a solution to the often dreaded cumbersome process before accessing their funds. Additionally, with SME’s contributing about 70 per cent of the employment rate in ASEAN countries, the new Ripple.net feature is bound to uplift a highly influential sector of the ASEAN economy.
