This post is an excerpt of a longer article.
Moving money around the world has never seemed simpler. Half the time, you can just punch some numbers into an app and the cash instantly appears in the recipient’s account. It’s certainly a far cry from when you would have to physically carry your money to the person you want to pay, making you a prime target for every pickpocket, highwayman and pirate in the area.
The reality is actually a lot more complicated. What seems like a one-tap process for you is actually something akin to a Mexican stand-off for the banks, sometimes involving half a dozen institutions relying on a variety of payment systems and a lot of trusts.
This is going to be easier to explain if we follow a simple example, so meet John and Nok. John needs to send 100 baht to Nok and, for whatever reason, he can’t just physically hand her an orange banknote. He’s going to have to find another way.
How does correspondent banking work?
The ideal solution would be if both Nok and John had accounts with the same bank because debiting John and crediting Nok is then just a case of moving numbers around in the internal system. Sadly, Nok is banking with Kasikornbank while John is with Bangkok Bank. That makes things more complicated.
The solution is called correspondent banking and is surprisingly simple. It revolves around the fact that the two banks can have accounts with each other. Bangkok Bank has an account at Kasikornbank, which is known as a Nostro account. Similarly, Kasikornbank has a Nostro account at Bangkok Bank, which Bangkok Bank would call a Vostro account.
Here’s the process:
- Bangkok Bank contacts Kasikornbank and informs them that John wishes to send 100 baht to Nok. The 100 baht is removed from John’s account.
- Bangkok Bank indicates that they owe Kasikornbank 100 baht. At the same time, Kasikornbank indicates that they are owed 100 baht from Bangkok Bank.
- Kasikornbank credits Nok’s account with 100 baht from their own funds. As far as Nok and John are concerned, the transaction is complete – John is down by 100 and Nok is up by 100. This is step 1 of the process, which is called “clearing”.
- The problem is that the banks have yet to balance their books. Bangkok Bank has 100 baht that isn’t really theirs while Kasikornbank has a 100-baht-shaped hole in their vault. They now have to rely on trusting the other bank to do the right thing.
- Bangkok Bank needs to put the 100 baht in the Kasikornbank Vostro account and then transfer 100 baht out of their Nostro account at Kasikornbank. Both of these are simple internal transfers within the same systems, as described above. This is step 2, aptly named “settlement”.
Why not use a hundi?
The hundi was developed in Medieval India and is, in essence, a very early form of correspondent banking. It’s almost like an IOU – what the Reserve Bank of India describes as “an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order.”
In the example of John and Nok, John would buy a hundi valued at 100 baht and send it to Nok. She could then take it to any merchant and get 100 baht in cash in return for the hundi. The two merchants then trust each other to settle the difference, just like the banks do now. It’s kind of like an early cheque, only it operates entirely without banks. It could even work with sending money overseas as you could theoretically cash a hundi in with any merchant who accepts hundi.
It sounds like the ideal solution to your remittance problems, right? Sadly, despite the fact that they have been around for centuries, they are now illegal. For the most part, they are illegal because they are unregulated and leave no paper trail. There is no evidence of the money has moved because the system works entirely on trust, backed up by family honour and connections. The US government suspected that hundi (or the Arabic equivalent, called hawala) were used to fund terrorist organisations and the Indian government banned them to prevent money laundering.
How is DeeMoney solving the problem?
DeeMoney is a Thai fintech solution to the problems faced by many in moving money from Thailand to other countries, offering more reliable, faster and cheaper transfers than other providers.
With multiple direct partnerships worldwide, DeeMoney is taking the traditional bank-owned international remittance system in Thailand by storm. Bypassing middlemen and harnessing the power of blockchain are just two reasons why DeeMoney is able to provide a superior cross-border payment solution to traditional services provided by banks or other third parties.
Having partnered with Ripple, DeeMoney is an early adopter in Thailand of the multi-billion dollar blockchain-powered global remittance network. RippleNet has also been used by Standard Chartered, Santander, Mitsubishi Financial Group and many other finance industry giants. In addition to Ripple, DeeMoney has direct partnerships with 24 banks and non-banks globally to process payments swiftly and affordably.
Being an early pioneer of Ripple technology allows DeeMoney to circumvent problems common to elements within the traditional payment infrastructure like SWIFT, high exchange fees and slow transaction speeds.
Head over to our sign up page to register and get started with DeeMoney as soon as possible.
Send money to Australia, Bangladesh, Cambodia, China, India, Indonesia, Malaysia, Myanmar, Nepal, Pakistan, Philippines, Singapore, Sri Lanka, and Vietnam from just 150 baht per transaction plus a foreign exchange fee.
DeeMoney serves as a hybrid solution that’s similar to both Transferwise and Western Union, yet distinguishable from both. Whilst TransferWise offers only digital transfers, and WesternUnion mainly cash transfers, DeeMoney is Thailand’s only service to provide both means of transferring money.